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EUR/USD: Waiting for decisive debates in France and progress in Russia-Ukraine peace talks

Relevance up to 19:00 2022-04-20 UTC–4

The 7th figure turned out to be a tough nut for the bears of the EUR/USD pair. Since last Friday, sellers have been trying to gain a foothold below the 1.0800 mark, but in vain – as soon as they cross this support level, the downward momentum fades. Traders take profits and open longs, showing excessive caution in the area of two-year price lows. As a result, the pair is actually marking time, in the 100-point range of 1.0760-1.0860. Price fluctuations are undulating – the pair alternately pushes off from the upper and lower boundaries of the corridor.

Looking ahead, it should be noted that the euro did not have any arguments for a reversal of the downward trend, and still does not. Moreover, the European currency may significantly weaken throughout the market tonight if the debate between Emmanuel Macron and Marine Le Pen ends in favor of the latter. France is on the threshold of the second round of the presidential elections, which will be held next Sunday, that is, on April 24th. Credit Suisse currency strategists said if Le Pen wins, the EUR/USD pair will fall to 1.0500.

The fact is that Macron’s rival is still a Euroskeptic, although not as radical as in 2017, during the previous presidential campaign. At present, Le Pen does not lobby for the idea of France leaving the European Union or the idea of withdrawing the country from the eurozone. At the same time, Le Pen is in favor of restoring the supremacy of French law over European law. She proposes to transform the EU into a Union of Nations, which will not be covered by a single legislative field. This is, so to speak, the “maximum program” in this context. The minimum program is to reduce France’s contribution to the overall European budget by 5 billion euros.

Recent polls show Emmanuel Macron leading in the second round. Sociologists say that he has from 53% to 56% support. While 44 to 47 percent of French citizens surveyed are ready to vote for Marine Le Pen. But there are at least two factors to consider here. Firstly, this is the statistical error of the survey, and secondly, a significant number of undecided citizens. According to relevant experts, they can seriously affect the final result of the current election campaign.

Marcon and Le Pen will fight for this electoral layer. Today’s debate is the most important event in this context. If Marine Le Pen, following the results of today’s meeting, can accumulate the sympathies of undecided citizens, then Marcon will cease to be a clear favorite of the election race. This fact will put the strongest pressure on the EUR/USD pair.

Therefore, the current corrective growth should be treated with great caution. All the fundamental factors that contributed to the strengthening of the euro are quite unstable. For example, buyers of EUR/USD reacted positively to today’s macroeconomic reports.

Germany’s producer price index for March was published, which is an early signal of a change/confirmation of inflationary trends. The numbers came out in the green zone, significantly exceeding the forecast values. On a monthly basis, the indicator reached 4.9% with a growth forecast of 2.7% (in February, the index rose to just 1.4%). In annual terms, the indicator reached a 31 percent mark with a forecast of growth up to 28%.

The volume of industrial production in the EU countries was also published today. This indicator also came out in the green zone, leaving the negative area – both on an annual and monthly basis. However, it should be taken into account here that we are talking about the February report: given the recent geopolitical events and the impending energy crisis, it can be assumed that the March and April figures will not please investors.

Today’s growth of the pair was also associated with another event – this time of a geopolitical nature. Press secretary of the Russian President Dmitry Peskov said that as part of the negotiation process, Ukraine received a draft document “with clear wordings.” According to Peskov, now the ball is on Ukraine’s side – Moscow is waiting for Kyiv’s reaction.

Negotiations between the parties have been practically frozen lately – legal subgroups of delegations have been working, but in general, an information vacuum has formed around the negotiation process again. Peskov’s statement in this context was evidence that there is still some progress in this direction. Although excessive optimism should not be shown, at least until the parties have announced the achievement of a comprehensive compromise solution.

Thus, despite the vigorous step of corrective growth, longs for the EUR/USD pair still look risky. The shaky fundamental background does not allow us to say that buyers will be able to reverse the downward trend. Therefore, it is advisable for the pair to take a wait-and-see position now, at least until tomorrow, when the preliminary results of the French debates will become clear.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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