FOREX Fundamental analysis for EUR/USD on June 24, 2024
Politics, through financial markets, certainly affects the economy. Thus, the increase in the cost of borrowing increases the burden on servicing the national debt and slows down GDP growth. This is also reflected in business activity, as expectations of an alarming outlook negatively affect purchasing managers' indices. The situation in France, where political instability has widened the yield spreads of French and German bonds and lowered the European PMI, clearly demonstrates the reasons for the fall of the EURUSD.
Until June, the pair showed steady growth against the backdrop of a slowdown in the US economy, while Europe showed signs of recovery. The gap in GDP growth between the United States and Europe was narrowing, American exceptionalism was becoming a thing of the past, and investors began to focus on synchronizing the global economy. However, in the summer, forex currency trading changed its positioning again
Although the US economy continued to cool, as evidenced by the decline in the Citigroup economic surprise index to a low of mid-2022, the snap elections in France, the US trade conflicts with the EU and China, as well as the slowdown in the Eurozone economy turned the EURUSD down.
In France, the National Rally is gaining momentum, which, according to polls, is supported by 36% of voters, while the New Popular Front and the Revival of Emmanuel Macron receive 27% and 20%, respectively. If the right gets a majority in parliament, this could lead to a confrontation with the EU, although the situation is likely to develop according to the Italian scenario with compromises.
If Marine Le Pen's party does not achieve a convincing victory, a minority government will be formed, which will calm the markets, but slow down the French economy. In any case, there are no favorable scenarios for EURUSD, and the pair will remain under pressure before the first round of elections on June 30.
The decline in economic activity in the United States and the rally of American stock indexes, due to artificial intelligence technologies, mitigated the fall of the EURUSD. However, with the acceleration of business activity in the United States, the pair fell below 1.07. Until the Fed starts talking about cutting rates, the difference in yields between U.S. Treasury bonds and their German counterparts will support the dollar.
Normalization of the political situation in France and a further slowdown in the US economy are necessary to stabilize the EURUSD. But new problems for the euro are already on the horizon. An increase in EU import duties on Chinese electric vehicles may trigger retaliatory measures by Beijing, and the upcoming US presidential election will increase the risks of anti-globalist policies. The inability of the EURUSD to return above 1.0715 indicates the weakness of the bulls and gives a signal to build up short positions.
Technical analysis for EUR/USD
EUR/USD is trading in a short-term downtrend. Last week, buyers tested the resistance area (A) 1.0760 - 1.0751, but sellers were able to hold this milestone. As a result, the pair declined and reached the first target of the bears - 1.0714. The next target is the minimum of June 14. We are holding previously opened short positions and will increase them on upward pullbacks and corrections
However, if the situation changes dramatically, the pair returns to growth and breaks through the resistance (A) upwards, then we believe that the upward correction will continue to the resistance area (B) 1.0806 - 1.0793. The trend line also runs here. From this area, we will also consider sales.