Political uncertainty in Europe | 14 June 2024

Events to pay attention to today:

17:00 GMT+3. USD - UoM Consumer Sentiment

20:30 GMT+3. EUR - ECB President Christine Lagarde Speaks

EURUSD:

The EUR/USD is trading at a flat rate of around 1.0735 on Friday in early Asian trading. The pair's growth may be limited due to uncertainty related to the European Parliament elections. Investors will be focusing on Christine Lagarde's speech at the ECB and the preliminary Michigan consumer sentiment report for June.

The European Parliament elections have exposed rifts in several member states. In France, following the defeat of the far-right Rassemblement Nationale, President Emmanuel Macron dissolved parliament and called snap elections, which could result in a strengthening of the far-right in the country's parliament, according to the website of the European Council on Foreign Relations.

The combination of political uncertainty in Europe and rate cuts by the European Central Bank (ECB) could put some pressure on the Euro (EUR) against the US Dollar at the moment. At its June meeting last week, the ECB cut interest rates by 25 basis points (bps), a move widely anticipated by market participants. As a result, the ECB's key rate fell to 3.75% from a record 4% since September 2023. Financial markets have fully priced in another rate cut this year, but economists polled by Reuters last week forecast two more rate cuts by the end of 2024.

The US producer price index (PPI) came in weaker than expected, with a 2.2% increase in May compared to April's 2.3% (revised from 2.2%), according to the US Bureau of Labour Statistics' Thursday report. In contrast, the core producer price index increased by 2.3% year-on-year in May, below the consensus estimate of 2.4% and April's 2.4%. The number of individuals filing initial jobless claims in the US for the week ending 6 June increased by 242,000 from the previous week, exceeding the market consensus forecast of 225,000.

However, the weak US economic data did not result in a decline of the dollar against its peers, as the Federal Reserve (Fed) signalled that it will cut its key interest rate just once by 25 basis points (bps) until the end of 2024. In a statement to the BBC, Fed Chairman Jerome Powell indicated that only "modest" progress had been made towards the target. He also noted that the US central bank would need to see a "good measure of inflation" before cutting interest rates.

Trade recommendation: If the price consolidates below 1.0720, we start selling. In case of overcoming the mark 1.0750 - buy

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