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The European Union is ready to reprimand France for violating the 3% deficit threshold set for a country with debts of 60% or more of GDP. Policy does not allow Euro against the US dollar To benefit from the appropriate environment. Let’s discuss it and make a trading plan.
Weekly fundamental forecast for the Euro
the Euro against the US dollar It seems like he is between a rock and a hard place. On the one hand, French politics is hitting the euro. On the other hand, the slowdown in inflation and the US economy creates a severe disadvantage for EUR/USD speculators to attack. Disappointing statistics on retail sales have become another stumbling block for the US dollar. In May, the index grew by a modest 0.1% month-on-month, below expectations, while previous data was revised downward.
Retail sales in the United States
Source: Bloomberg.
Following the release of retail sales statistics, Goldman Sachs will lower its forecast for US GDP growth in the second quarter by 0.1 percentage point to 2%. The reduction could have been more significant had it not been for positive data from industrial production. However, slowing consumer prices and retail sales indicate slowing domestic demand and give the Fed reasons to cut the federal funds rate.
This is what Federal Open Market Committee member Adriana Kugler was talking about. Referring to recent reports, she said a slowdown in consumer spending “may be underway.” Businesses are forced to cut prices to retain customers, an encouraging sign that inflation will continue to slow and the Federal Reserve will begin to ease monetary restrictions.
It doesn’t matter when; What matters is that monetary policy will be eased! The US stock market has witnessed recent growth under this slogan. Downbeat retail sales have once again turned good for the US Standard & Poor’s 500, which reached its record 31st close in 2024. Treasury yields have fallen to their lowest levels since late March, and derivatives are 67% confident of a September rate cut. These are ideal conditions for selling the dollar, however Euro against the US dollar Take a step back.
According to a Bloomberg insider, the European Union will reprimand Italy and France for violating fiscal consolidation rules. A country with more than 60% debt must not exceed its budget deficit by more than 3% of GDP. Brussels will then recommend measures to reduce this number.
France, with a deficit of 5.5%, will be placed on the “blacklist” at a very bad time. Parties poised to win the parliamentary elections intend to cut taxes and increase spending, increasing the negative budget balance even further. A clash with the European Union is inevitable. Investors are actively selling European securities, widening the yield spread between French and German bonds to their highest levels since 2017.
French/German bond yield trends
Source: Bloomberg.
One more step and this indicator will rise to its highest level since 2012, when the eurozone faced a debt crisis.
Weekly trading plan for EURUSD
Consequently, the US dollar is under pressure as the Federal Reserve approaches monetary easing. However, Euro against the US dollar The situation cannot be exploited amid escalating political risks in France. Moreover, a decline in the pair below 1.0715 and 1.07 will allow us to build short positions.
EURUSD price chart in real time mode
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