EUR/USD: France drags down the EU's PMI Service index

Deprived of benchmarks from Wall Street yesterday, a public holiday in the US for Independence Day, forex traders took only limited initiatives, in a starving level of activity on the EUR/USD, which continues to bring relief on the inflation front, particularly in the US, and the stronger than expected slowdown in the German economy. The ZEW index of confidence in the German economy, on 11 July, will be very carefully scrutinised in this regard. Just like, this Friday, the federal monthly report (NFP) on private employment in the United States. The opportunity to gauge chronic tensions on employment and its inflationary effects on wages. This burning subject will naturally have been raised during the debates of the last FOMC, of which the Minutes, namely the chronological report, will be published today, at 20:00 p.m., Paris time.

At the end of this month, a new meeting of the Monetary Policy Committee is scheduled. According to the CME's FedWatch tool, the odds of a 25 basis point hike, after the June break, exceed 85%. "If the scenario of a new rate hike by the Fed at the end of July still holds the rope, with a voluntary Powell during his last declarations, [Thomas Giudici, at Auris Gestion] consider nevertheless that a new break is always likely".

"In the euro zone, the decline in inflation figures should, however, be insufficient for the ECB. Indeed, if headline inflation over one year fell from 6% to 5.4% over the month, prices in services rose to new and "core" inflation is thus up slightly over the month (5.3% against 5.2% in May)", continues the head of bond management at Auris Gestion.

Traders took note this morning of the PMI activity indicators in services in Europe, in final data for the month of June. The disappointment is with go, with a score of 52 points for the whole of the Euro Zone. This is a 4 month low.

The Euro Zone economy is at a standstill at the end of the second quarter. Although growth continued in the service sector, it slowed to its weakest pace in five months. It was also offset by a sharp decline in production in the manufacturing sector, which accelerated compared to May.

Dr. Rubia, Chief Economist at Hamburg Commercial Bank, shed the following light: “The French services sector was the weakest performer in June, with France also being the only country covered by the survey to have reported a drop in activity in services compared to the previous month. This deterioration in the economic situation in France can be explained, in addition to more general factors such as the tightening of financial conditions and the weakening demand, by the strikes organised in recent months against the pension reform project".

As a reminder on Monday, the final industrial PMI data also gave no satisfaction. It was the German component in particular that made the markets wince, coming out below the first estimates, at 40.5, the lowest since June 2020.

Right now, the EUR/USD is trading at $1.0889.

KEY GRAPHIC ELEMENTS

The EUR/USD now sees its 20-day moving average (in dark blue) cut upwards against its 50-day counterpart (in orange), which requires us, according to the established trading plan, to cut our positions short, waiting for suitable signals. The form of congestion observed since 16 June lacks frankness, and remains poor in lessons.

MEDIUM TERM FORECAST

In view of the key graphic factors that we have mentioned, our opinion is neutral in the medium term on the EUR/USD.

We will maintain this neutral opinion as long as the EUR/USD parity prices are positioned between the support at $1.0784 and the resistance at $1.1000.