Euro flat ahead of crucial French election

The euro is almost at a standstill on Friday. EUR/USD is trading at 1.0705, up 0.02% on the day. The euro has hovered close to the 1.07 line for most of the week as it looks for direction.

Will Macron’s gamble backfire?

All eyes are on France – not for the Olympic Games, but rather the first round of parliamentary elections which will be held on Sunday. President Macron called the snap election after the extreme right made sharp gains in the recent European Parliamentary elections. Macron is counting on voters in the center to provide him with a decisive win, but he is taking a huge gamble. If Sunday’s elections mimic the European Parliamentary vote and the far-right registers significant gains, it could result in turmoil in the financial markets and a decline in the euro.

Marine Le Pen’s far-right National Rally party has a comfortable lead in the polls and if she wins a majority in the National Assembly, President Macron will have to share power with a prime minister from Le Pen’s party. If no party wins a mandate to form a government, France will be thrown into disarray until the political deadlock is resolved.

The week wrapped up with the Federal Reserve’s preferred inflation indicator, the Core Personal Expenditures Consumption (PCE) index. The core PCE index dipped to 0.1% m/m in May, down from a revised 0.3% in April and in line with expectations. Annually, Core PCE dipped from 2.7% to 2.6%, also in line with the market estimate. The drop in the inflation report has raised the probability of a September rate cut to 61%, up from 58% just prior to the release, according to CME’s FedWatch.
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EUR/USD Technical

• There is resistance at 1.0703 and 1.0728
  1.0678 and 1.0653 are the next support lines

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