EURUSD is moving in Ascending channel and market has fallen from the higher high area of the channel
EUR/USD Gains Momentum as Speculation Grows on Fed Rate Cuts
Introduction
Hey there! If you’ve been keeping an eye on the forex market, you might have noticed some interesting moves in the EUR/USD pair recently. Let’s dive into what’s been happening, why the US Dollar is struggling, and how the upcoming French election could impact the Euro.
US Dollar Struggles Amid Fed Rate Cut Speculation
The EUR/USD pair has been on a winning streak, trading around 1.0790 during the Asian session on Thursday. The main driver behind this surge? Growing speculation that the Federal Reserve might cut interest rates in 2024. This speculation has caused the US Dollar to weaken, giving the Euro a chance to gain ground.
US Economic Data: A Mixed Bag
ISM Services PMI Drop
One of the significant factors contributing to the US Dollar’s decline is the latest ISM Services PMI report. In June, the PMI dropped sharply to 48.8, the steepest decline since April 2020. This was a surprising figure, well below the market expectations of 52.5 and a decline from May’s reading of 53.8.
ADP Employment Report
Adding to the mix, the ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June. This was the lowest increase in five months and fell short of the expected 160,000. It was also below May’s downwardly revised figure of 157,000. These weaker-than-expected data points have fueled the speculation that the Fed might pivot to rate cuts next year to support the economy.
US Dollar Index and Treasury Yields
The DXY Struggles
The US Dollar Index (DXY), which measures the USD against six other major currencies, has been facing challenges. It’s trading around 105.30, influenced by lower US Treasury yields. By the close of Wednesday, the 2-year and 10-year yields on US Treasury bonds were at 4.70% and 4.35%, respectively. These declining yields are a sign that investors are losing confidence in the strength of the US economy, further weakening the Dollar.
EURUSD is moving in box pattern and market has fallen from the resistance area of the pattern
Eurozone Dynamics and the Upcoming French Election
Volatility Ahead for the Euro
On the Euro’s side, traders are bracing for increased volatility as the second round of the French election approaches on July 7. Political events often create uncertainty in the markets, and this election is no different. According to a Harris Interactive poll conducted for Challenges magazine, the RN (Rassemblement National) is projected to fall short of the 289 seats needed to control the 577-seat National Assembly. This projection comes after a cross-party anti-RN coalition was formed, adding another layer of complexity to the political landscape.
Yield Spread Between French and German Bonds
Interestingly, the yield spread between French and German 10-year government bonds has narrowed to about 71 basis points, down from a recent peak of 82 basis points at the end of last month. This narrowing spread suggests that investors are gaining confidence that the far-right RN party will not secure a parliamentary majority. A lower risk premium for French government bonds is typically a positive sign for the Euro, as it indicates growing investor confidence in the stability of the Eurozone’s second-largest economy.
Final Summary
So, there you have it! The EUR/USD pair has been gaining ground due to a combination of weaker US economic data and growing speculation about Fed rate cuts in 2024. Meanwhile, the Euro is navigating its own set of challenges with the upcoming French election. As always, political events and economic data can significantly impact the forex markets, so it’s essential to stay informed and be prepared for potential volatility.
Keep an eye on the news and market developments, and happy trading!
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