EURUSD Losses Pile Up As Eurozone Politics Weigh In

Summary:
• Losses by governing parties in France and Germany have added pressure to EURUSD, with the euro failing to take advantage of soft US data.

EURUSD printed a second consecutive long bearish candle on Friday, trading at 1.0700 and going down by 0.38 percent in the New York session to take its weekly losses near 1 percent. Furthermore, the pair was on course to register the first successive weekly losses for the first time since March, underlining the pressure exerted from the political situation in Europe.

The European parliamentary elections have pressured the euro in the last week. In particular, there were high-impact losses in the Eurozone’s two largest economies, Germany and France. In France, President Emmanuel Macron’s party lost heavily, only gaining 14.6 percent of the votes, with Marine Le Pen’s National Rally party triumphing with 31.5 percent. The move triggered Macron to call for snap elections, creating jitters in France’s political landscape.

While Macron has stated that he will not resign even if he loses the parliamentary elections, the EU election results could be a pointer to an impending change that could have far-reaching impacts on the euro. Meanwhile, in Germany, Olaf Scholz’s Social Democratic party only managed to garner 14 percent of the EU parliamentary votes, which could also have major implications on the Eurozone’s economic policies.

Meanwhile, the ECB remained non-committal on a potential second interest rate cut of the year, with ECB Governing Council member Bostjan Vasle indicating that the bank would need more proof of disinflation before making such a decision. Elsewhere, US Producer Price Index declined to minus 0.9 percent in May, beating the forecast decline of 0.1 percent. That provided further proof that the US inflation is headed down, and will provide support to the EURUSD pair. Also, US Initial Jobless Claims overshot the forecast, coming in at 242k, versus 225k. These could also cushion the pair against extensive losses in the near term.

Technical analysis

EURUSD will likely continue its downward movement if resistance persists at 1.0705. That will likely see the first support established at 1.0690, but a continuation of control by the sellers could break the support and send the exchange rate lower to test 1.0685. However, a move above 1.0705 will favour the buyers to take control. The upward momentum will likely encounter the first resistance at 1.0710. A breach of that mark will invalidate the downside narrative and could strengthen the upward movement to test 1.0720.