It is election season in France, and as expected, citizens are interested in the outcomes of the first and second rounds of the election, which will see 577 members of the 17th National Assembly assume office later. As expected, the financial markets respond to political events, reflecting the prevalent investors’ bias toward the euro and other currencies. The Eurozone elections and other important data, such as non-farm payroll, will play critical roles in the euro’s move in July.
Euro Upsets US Dollar After Three-Week Struggle
Friday, 28 June 2024, saw the Euro end the three-week losing streak against the USD, closing the month with nearly 1.3%. The EURUSD closed May on a bullish run, which extended until 4 June, when the bears gained a foothold. The pair tried to rally but ultimately fell to the bears on Friday, 7 June; they remained in control, pushing the price lower from the two-month high of 1.09153 and hitting and going below the resistance at 1.080/14, 1.0860 before bouncing off the 1.0641/77 support.
The 1.0641/77 support level is critical for the next few weeks. The price has tested the level for weeks since April, bouncing off each time. The weekly chart shows the EUR/USD pair swinging between the 1.09339 resistance and the 1.05963 support levels. If the price breaks the 1.06014 low from 16 April 024, it may break the one-year support at 1.05096.French Stocks Also Rally Following Election
The Euro tumbled on Monday, 10 June, following President Emmanuel Macron’s surprise announcement to call a snap election. The shock hit French banks, shares, and the Euro, with the French CAC index falling by 1.8% by 11.02 a.m. ET.
The banks, uncertain and rattled by the announcements, also experienced a hit, with Société Générale, BNP Paribas, and Credit Agricole shares falling 8%, 5.5%, and 4.4%, respectively. The Euro took a hit, falling 0.6% against the US Dollar and hitting a new month-low. The Euro also struggled against the British pound, tumbling 0.6% by afternoon of the same day.
The Euro’s rise following the French first-round elections is not unconnected with the surprising increase in French stocks, which occurred on Monday following the announcement of election results. The French CAC 40 index, which tracks 40 of France’s biggest companies, opened with a 2.7% gain and closed the day 1% higher. The index had been on an uptrend since November 2023 but slid to a bearish market on the daily chart following the snap election announcement.
Future Outlook for the Euro
The second round of elections slated for 7 July is vital to France’s economic future, as it will determine the party that holds the majority of the French Parliament. If the result goes their way, a majority of far-right parliament could challenge Macron’s economic policies; the difficulty in passing bills may weigh significantly on the country’s financial state and reflect on the Euro. France ranks 11th in the Eurozone by GDP, contributing 17.2% of the total GDP.
The technical support at 1.0641/77 remains vital to the EUR/USD price movement. Analysts expect significant reactions from that level; a break or close below that price will set the Euro on a potentially long-term trend, but other factors, such as the economic events lined up for July, will shape how the Euro reacts. The intraday bias for the pair as of Wednesday, 3 July, is an upside movement targeting the 1.0915 resistance. The 200-EMA indicates a potential uptrend as the price trades above the line for the first time since 7 June.
Key Economic Events for July (Europe/US)
July will be a busy month for the currency market. Monday, 1 July, we will see the release of the ISM Manufacturing PMI, followed by the ECB President’s speech. The Harmonized Index of Consumer Prices, Core Harmonized Index of Consumer Prices, the ECB President’s speech, and the Fed’s Chairman speech will follow on Tuesday, July. Wednesday, 3 July, we will see the ADP Employment Change data release, ISM Services PMI, FOMC minutes, and the ECB President’s speech.
On Friday, 5 July, we will see the retail sales (YoY) data, non-farm payrolls, and the average hourly earnings (YoY and MoM) data. The July 7 French second-round elections will also be crucial to the Euro’s performance in the coming weeks. The US Federal Reserve is also expected to finally cut interest rates in the coming months in response to decelerating inflation; this could impact the Euro.
Trading EUR/USD During French Elections
Although traders expect a reaction from the market following the French election results, the situation provides an opportunity to ride short gains before the market corrects itself. Traders may wait for the crucial reactions at resistance and support levels and confirm trends with retests. As France moves closer to its second-round elections, the Eurozone markets will be keen on observing the outcomes, even as the world watches the unfolding US election season and its impact on financial markets. Investors will seek clarity in the coming weeks as they seek a market trend post-French elections.
