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The US dollar strengthens after the advance of far-right parties in the European Union elections

  • The US dollar is recovering on all fronts, with the antipodes as exceptions.
  • Markets are shaking in fear after the EU election result forced Macron to call early elections.
  • US Dollar Index surpasses 105.00 and hits a new four-week high.

The US Dollar (USD) rises and extends its rally on Monday following Friday’s upbeat May Non-Farm Payrolls data. The main driver of the second stage of growth comes from the European elections this weekend, where far-right parties gain ground in the European Union (EU). The results in France were even devastating for French President Emmanuel Macron and his ruling coalition, so much so that he called early elections for June 30 and the second round on July 7.

On the economic front, it’s a very quiet start to the week. On Wednesday, attention will focus on the publication of the US Consumer Price Index (CPI) for May and on the US Federal Open Market Committee (FOMC), which will decide on the interest rate of the Federal Reserve’s (Fed) monetary policy and will publish a new dot plot and economic projections.

Daily summary of market movements: US to digest European election results

  • On Sunday the results of the European elections were published with some key points:
    • French President Emmanuel Macron saw his party come in third, well behind the two parties that got the most votes. This forced President Macron to call early elections.
    • In Italy, current far-right Prime Minister Giorgia Meloni’s party won another substantial number of votes and further cemented far-right gains for her government in Italy.
  • The US Treasury will be busy on Monday with three bond allocations:
    • At 15:30 GMT, a 3-month bond and another 6-month bond will be published.
    • At 17:00 GMT, a 3-year bond will be auctioned.
  • Stocks are in the red across the board, especially in Europe. The Euro Stoxx 50, the European equity benchmark, is falling more than 1%. US stock futures are slightly in the red.
  • There has been a sharp change in Fed rate cut expectations for September. The CME FedWatch tool shows that 30-day federal funds futures price data suggests a 49% chance that the interest rate will be lower than the current level in September, down significantly from the 59.6% recorded a week ago .
  • The benchmark 10-year US Treasury bond yield marks a new seven-day high at 4.46%.

DXY Dollar Index Technical Analysis: If and only if

The US Dollar Index (DXY) has broken through some crucial technical levels in its rally over the past two days. Trading even above the 55-day simple moving average (SMA) at 105.04 on Monday, it will be key to see if this level can hold as support for Wednesday, when a rather hawkish Fed could lay out the plan to get the DXY back up. 106.00. That would even mean the possibility of a new high in 2024, depending on the message that US Fed Chairman Jerome Powell delivers to the markets.

On the positive side, there are some technical or crucial levels to keep in mind. The first is 105.52, a crucial level that held support for most of April. Next is 105.88, which caused a rejection in early May and will likely act as resistance again. The biggest challenge remains 105.51, the year-to-date high marked on April 16.

On the downside, an SMA trifecta now acts as support. First, and very close, is the 55-day SMA at 105.04. A little lower, near 104.45, both the 100-day and 200-day SMA form a double layer of protection to withstand any decline in the US Dollar Index. If this area breaks, look for 104.00 to save the situation.

Source: Fx Street

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