(MENAFN- Daily Forex)
EUR/USD's attempts to rebound higher at the start of this week's trading failed, with gains not exceeding 1.0746, as it quickly returned to its strongest downward path. It stabilized around 1.0693 at the time of writing. Some calm words from the French National Party led by Le Pen helped lift the euro on Monday, but it quickly retreated. President Macron's warnings about civil war were not helpful. Also, the US elections will be in the spotlight this week with the first debate between Biden and Trump.
Tuesday's session was mostly quiet, with one notable exception being the German DAX, which fell by -1.3%. This is a much bigger drop than the FTSE, which fell by -0.25%, and the CAC in France, which fell by -0.7%. The reasons seem to lie in the individual stocks that make up the 40 stocks in the DAX; Merck shares fell 10%, while Airbus shares fell 9%. Elsewhere, volatility was low, with US stock futures unchanged from Monday's close.
Also, currencies were steady with the euro back at 0.85 against the pound after Monday's euro rally faded. That always seemed likely as the euro would struggle to hold onto any gains ahead of Sunday's French election. Furthermore, there were attempts to calm markets ahead of the event, but markets will need more than just words to remain steady.
Overall, the French election is still weighing on the euro.
Marine Le Pen's National Party made huge gains in the European Union elections earlier in June and is leading in the polls for the parliamentary elections. Markets are clearly looking closely at what a National Front leadership might mean for France, and that has prompted them to try to send some soothing messages. Representatives have said the party will respect the country's budget rules, which are somewhat vague but at least suggest they will take some fiscal responsibility. Clearly, this appears to have helped lift the euro on Monday but not in a sustainable way, with the euro falling again.
More importantly, the RN has failed to provide sufficient clarity on its financial plans, with the promise of €7 billion in tax breaks apparently being one of its pledges. This will be funded by cuts to the EU budget, which is bad news for the euro, as it will not only create a funding gap but will put the focus on the issue of contributions and may encourage other countries to consider cuts too. Le Pen remains a staunch Eurosceptic and, while she has softened her stance on leaving the EU altogether, she is likely to be a constant thorn in its side if she wins.
French President Macron, for his part, has taken the opposite approach to the National Front with his soothing words and chosen a more provocative angle, suggesting that a victory by the far left or far right“would spark a civil war.” Clearly, this is just rhetoric as he wants voters to veer to the middle ground and his party, Ennahdha. After all, Macron called the election knowing full well that both the right and left would lead by a large margin in the polls.
Overall, civil war warnings will keep markets on edge for the rest of the week, and the euro could drift lower over the weekend as traders take their risk.
On another note, affecting the EUR/USD, the US election is heating up this week.
More people will be voting in 2024 than ever before. Already, India and Mexico have gone to the polls and shaken up their markets. The US election is still some way off in November, but the electoral process will start heating up soon, with Thursday night seeing the first televised debate between President Biden and Donald Trump. Whether this will be a market-sensitive issue long before the election remains to be seen, but it will be closely watched regardless.
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Overall, we want to see whether the dollar responds to who“wins” the debate. ING Bank noted that a positive result for Trump could lead to a rise in the US dollar. Markets may respond to overly enthusiastic promises of fiscal stimulus, such as tax cuts. The US debt burden has ballooned since Covid, and the US is at risk of another downgrade from Moody's if it can't get spending under control. That would send yields higher and the dollar lower.
On the stock exchanges front, The Stoxx 50 index of European shares lost 0.2% on Tuesday, led by a nearly 10% drop in Airbus shares after the company softened its financial targets and said it would take a €900 million charge for its space business. Also, the broader Stoxx 600 index fell 0.3%, with industrial stocks down 1.6%, while oil and gas rose 0.4%. On the positive side, Novo Nordisk shares rose more than 3% after its weight-loss drug Wegovy was approved in China for long-term weight management. In addition, shares of Zealand Pharma, which is developing a competing weight-loss drug, rose almost 9%.EUR/USD Technical analysis and forecast:
We expect the general downtrend in EUR/USD to remain. A move towards the 1.0600 support level will soon be encouraged by further bearish momentum. Technical indicators will not move towards strong oversold levels according to the performance on the daily chart above without moving towards support level 1.0480. On the other hand, the resistance 1.0830 will remain the most important to break the current downtrend. Finally, the currency pair will remain stable in its current range until the US inflation reading at the end of the week.
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