Where With the Euro Be After the PCE and French Elections?

EUR/USD found stability around the 1.0700 mark after initially plummeting on news of impending emergency elections in France. MUFG’s assessment indicates a current 1.0% risk premium embedded in the EUR/USD exchange rate. The release of the May PCE price index was pivotal for USD market dynamics.

EUR/USD Chart H4 – The 50 SMA Pushing the Highs Lower

Throughout the preceding week, EUR/USD traded within a narrow range as market anticipation built around the report. Confirming expectations, the data indicated a continued cooling in inflationary pressures, prompting minimal movement in EUR/USD as investors awaited further economic signals.

Italy June Preliminary CPI (Istat – 28 June 2024)

• June CPI: +0.8% vs. +1.0% y/y expected (Prior: +0.8%)
• HICP: +0.9% vs. +0.9% y/y expected (Prior: +0.8%)

Key Points:

• The headline inflation figure is softer than expected but unchanged from May.
• Core prices, although not highlighted in this report, were closer to 2% last month, warranting careful monitoring.

Context: Italy’s inflation appears stable and comfortable for the ECB, but core inflation trends suggest potential underlying pressures that could complicate the inflation outlook.

Context: The decline in headline CPI is encouraging for France, aligning with the ECB’s target. Yet, persistent inflation in the services sector underscores ongoing inflationary challenges in the broader economy.

Spain June Preliminary CPI (INE – 28 June 2024)

• Prior: +3.6%
• June CPI: +3.4% vs. +3.3% y/y expected
• HICP: +3.5% vs. +3.4% y/y expected (Prior: +3.8%)

Key Points:

• Spanish annual inflation remains just above 3%, showing a slight decrease from May.
• Core annual inflation is steady at 3.0%, indicating persistent inflationary pressures.

Context: While there’s a minor dip in the overall CPI, core inflation’s persistence at 3% highlights the underlying inflationary trends in Spain.

Potential Scenarios for the French Elections:

If either the right-wing or the left-wing parties show strong electoral performances, EUR/USD could test support levels near 1.0500. Alternatively, a surprise showing by centrist parties like Les Republicains could narrow the risk premium and potentially bolster the euro.

EUR/USD Live Chart