EUR/USD: French vote leads to EUR surge

Against a backdrop of relative relief at the outcome of the first round of the French legislative elections, which virtually wipes out the feared scenario of an absolute majority for the Rassemblement National, the EUR/USD regained some area near $1.0760, at its highest since 13 June.

France is behind Germany, the second economic power in the Eurozone, and the balance of its budget is under scrutiny.

"Even if the probability of an absolute majority of the National Rally is not completely zero at this stage, the first declarations of the different political groups on possible withdrawals and therefore the opening of negotiations with a view to the second round will make the scenario of the difficult absolute majority", deciphers Alexandre Baradez (IG France).

A period of negotiations therefore begins, which will materialize at the level of the continuation of the vote, by the withdrawal of numerous candidates, in the case of "triangular", or "quadrangular", that is to say when 3 or 4 candidates are in "ballot".

"These negotiations will also probably make it possible to smooth over the most radical political proposals formulated during the campaign by certain political groups, these radical measures which are typically those which frighten the markets."

In terms of statistics on Friday, sigh of relief! No unpleasant surprises regarding the recent publication of "PCE" prices (personal consumption index), THE Fed's preferred measure in its assessment of inflation. Excluding food and energy, in so-called core data, prices increased by 0.1% in May, which is perfectly in line with the target. The monthly progression of the index, for the month of May, however, was increased from 0.2% to 0.3%.

Enough to immediately raise the probability of a federal rate cut in September, to 68%, as at the start of the week. This probability had "melted" to 62% in the middle of the week as leading indicators of inflation, economic activity, orders for durable goods and employment were published. As a reminder, the CME Group, which provides these probabilities via the Fed Watch tool, is based on the price dynamics of 30-day federal funds futures contracts.

Furthermore, the Chicago PMI (47.3), as well as the revised data from the American Consumer Confidence Index (U-Mich), at 68.3, both exceeded expectations. The ISM manufacturing PMI is expected at 4:00 p.m. for the United States. In the immediate future, currency traders have come to terms with the final PMI data in the Eurozone for the month of June, without any deviation from the first estimates. The industrial PMI stands at 45.5 points.

Right now, the EUR/USD is trading at $1.0744.

KEY GRAPHIC ELEMENTS
In high volatility, the EUR/USD has regained the upper part of a bearish oblique line, providing a short-term supply of oxygen. The technical signals are immediately contradictory and do not allow for a calm position to be taken. In all cases, we are suspending our sales lines.

MEDIUM TERM FORECAST
Considering the key graphical 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 EUR/USD prices are positioned between support at $1.0550 and resistance at $1.0885.