EUR/USD: the euro approaches important support at $1.0650

EUR/USD could attempt a near-term rebound as it approaches a major bullish slant line at around $1.0650.

Political risk in France and hawkish rhetoric from the Fed put pressure on EUR/USD

The EUR/USD price fell sharply last week, with the euro falling to a more than one-month low from a two-month high in early June. The euro fell from around $1.09 to $1.07, a drop of almost 2% in two weeks following rising political uncertainties in Europe following the European elections.

The dissolution of the National Assembly in France and fears of the arrival of the extremes in Matignon had a strong impact on French assets last week. The CAC 40 fell 6% while the rate differential between French OATs and the German Bund jumped 50% to reach its highest level since the 2017 election. International investors favor foreign assets, in particularly the dollar to cover the economic risk of an arrival of the National Rally or the Popular Front in Matignon.

At the same time, the exchange rate was penalized by rather hawkish rhetoric from the Fed, despite rather reassuring figures on inflation and employment. The FOMC revised its rate projections slightly higher last week, now forecasting only one rate cut this year. Minneapolis Fed President Neel Kashkari also reiterated this on Sunday, saying it was a “reasonable forecast” of just one interest rate cut this year.

EUR/USD daily price chart – key levels

EUR/USD could try to regain height at the bottom of its triangle

From a technical analysis point of view, the underlying trend of EUR/USD continues to be neutral inside the symmetrical triangle in which the exchange rate has been moving since the end of last year.

In the short term, the return/risk pair now becomes again in favor of purchases of the euro given that the exchange rate returns to the bottom of the symmetrical triangle. Despite the absence of a bullish technical signal, the prospects of a rebound dominate at the bottom of the triangle. On the other hand, a clear exit from the bottom of the triangle would be an important bearish signal which would pave the way for a significant decline in the euro over the coming months.