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18.06.202416:14 Analisis Forex & Kajian: The ECB will not save the euro

The ECB does not plan to intervene in the financial markets because their recent movements do not meet the key criterion: the increase in risk premiums is not chaotic and unjustified. Chief Economist Philip Lane expressed this opinion. If the most significant weekly widening of the yield spread between French and German bonds in history is not considered unjustified, then what is? The sell-off in Old World asset markets prevents the EUR/USD from lifting its head.

Large French companies comprise about 40% of the EuroStoxx 50's capitalization. Unsurprisingly, the European stock index is sinking along with its French counterpart, the CAC-40. Investors are withdrawing money from the Old World and placing it in the New World, contributing to the S&P 500's 30th record high of the year. Thus, one of the drivers of the decline in EUR/USD is the capital outflow from Europe to North America.

Dynamics of European Stock Indices

Exchange Rates 18.06.2024 analysis

Attempts by the euro to lift its head are doomed to failure, at least until the end of the month. The first round of voting for the National Assembly will be held on June 30, and investors anxiously follow political news. Marine Le Pen's calls for an absolute majority and the National Rally's intention to reduce energy and fuel sales taxes, partly by cutting EU budget contributions by €2 billion, are causing the euro to sink.

It is enough to recall what the absolute majority and subsequent reforms of the ruling Morena party in Mexico did to the peso to understand that the euro will not be pleased if right-wing parties win the French parliament. The National Rally is currently vying for the largest representation in the country's legislative body, followed by the left-wing New People's Front and Emmanuel Macron's Renaissance.

Dynamics of Political Party Ratings in France

Exchange Rates 18.06.2024 analysis

Meanwhile, disappointing statistics on investor confidence in the German economy raise doubts about its recovery. The hope for strong GDP growth in the eurozone, led by the German machine, allowed investors to buy EUR/USD from mid-April to May. However, in June, everything turned upside down.

Exchange Rates 18.06.2024 analysis

If not for the relentless rally in American stock indices, perceived as an improvement in global risk appetite (usually putting pressure on the US dollar as a safe-haven asset), and the slowdown in US inflation and the related drop in Treasury yields, EUR/USD would already be trading below 1.05. However, the USD index appears vulnerable amid the imminent start of the Federal Reserve's monetary expansion.

Technically, on the daily EUR/USD chart, the bulls' inability to recover the inside bar indicates their weakness. A return of quotes to the lower boundary of this bar at 1.0685 would be grounds for increasing previously formed shorts from the 1.0845 level. Initial targets remain at 1.06 and 1.05.

* Analisis pasaran yang disiarkan di sini adalah bertujuan untuk meningkatkan kesedaran anda, tetapi tidak untuk memberi arahan untuk membuat perdagangan.

Marek Petkovich,
Analytical expert of InstaSpot
© 2007-2024
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