EUR/USD: is a risk premium integrated in the price?

The Euro was balanced against the Dollar yesterday, the day after the second round of the French legislative elections. Last week, the USD fell with the increasingly clear prospect of a federal rate cut in September.

"The new communist Popular Front has clearly exceeded expectations. However, it is unlikely to govern. We expect that a centrist/technocratic prime minister will ultimately be put in place," say Nomura strategists.

According to the final data provided by the Ministry of the Interior, the Alliance of the New Popular Front comes first with 181 seats, Ensemble cushions its fall with 169 seats, and the National Rally, although significantly increasing its contingent of deputies, only comes in third position, with 144 seats.

"The risk premium on the euro seems to have already partly faded and we do not expect a surge in the EUR/USD due to the absence of a clear majority", says Claudia Panseri, CIO of UBS Management France.

In the US, last week, several statistics argued for a soft landing scenario for the American economy, likely to ease government bond yields and increase the likelihood of a federal rate cut in September. The ISM Services in particular, falling below the 50 mark, surprised the financial community, and the federal employment report, published Friday, did not contain any unpleasant surprises.

First of all, the unemployment rate, which was expected to be stable at 3.9% of the active population, increased slightly to 4%. On the other hand, job creation in the private sector (excluding agriculture) stands at 206,000, 15,000 units above the target. RAS for average hourly wages, whose monthly dynamic is stable and in line with expectations, at +0.3%. Over one year, wages slowed to +4%.

"Jerome Powell could give indications in this direction during his two speeches planned this week, tomorrow and Wednesday," says Chris Dembik, investment strategy advisor at Pictet AM

In the immediate future, currency traders are coping with the morning publication of the Sentix investor confidence index, in free fall to -7.2.

Right now, the EUR/USD is trading at $1.0821.

KEY CHART ELEMENTS
In strong volatility in week 27, the Euro/Dollar currency pair returned to 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 the EUR/USD is positioned between support at $1.0758 and resistance at $1.0885.