EUR/USD outlook remains as clear as mud

The US dollar has remained mildly on the backfoot amid a lack of any major news today and with the US out on holiday. The greenback fell on Tuesday after a weaker-than-expected retail sales print. FX investors will look ahead to two major central bank decisions on Thursday (BoE and SNB) as well as important US data that includes the weekly jobless claims figures, building permits and the Philly Fed Manufacturing Index. Global PMI data will be in focus on Friday, which could impact the short-term direction of the dollar and therefore the EUR/USD outlook. But as far as this pair is concerned, the main focus will be on European politics with France’s snap election taking place on June 30.

 

EUR/USD Outlook: Focus on French Election

 

This week, the stabilisation of French bonds and the resulting narrowing of the German-French yield spread suggest investors are feeling slightly more confident about the EU’s political situation. However, this may only be a temporary calm. The outcome of the French general election, which begins on June 30 and concludes with a second round on July 7, will be crucial. It is unlikely that we will see a significant rally in the EUR/USD until after the election. Any pre-election gains would likely result from a potential drop in the dollar.

 

So, the EUR/USD outlook is closely tied to the French election outcome. If investors reduce the political risk premium, there could be significant room for a rebound in the EUR/USD. However, this is unlikely before the first-round vote on June 30. Consequently, the euro is expected to remain subdued in any USD-negative scenario. Investors anticipating a weaker US dollar should focus on other currency pairs, in particular those involving commodity currencies such as the AUD/USD.

 

EUR/USD Technical Analysis and Key Levels

Source: TradingView.com

The EUR/USD remains largely directionless, continuing to trade within its ranges from earlier this year. Despite recent political turmoil in the EU, the exchange rate has not seen a major breakdown, although the euro did weaken across the board before bouncing back slightly in more recent days. The short-term bias remains slightly bearish, with rates having broken below several short-term support levels, including the 200-day moving average around 1.0790.

 

On Friday, the EUR/USD broke below the next support level around 1.0750. This level has not been reclaimed on a closing basis thus far this week. The next potential support level is around the 1.0650-1.0700 area, where we also have a bullish trend line from October intersecting.

 

On the upside, the immediate resistance levels are the previously broken supports at 1.0750 and 1.0790, followed by a more significant hurdle near the 1.0950 area.

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R