• The EUR/USD exchange rate is under pressure as political uncertainty returns to haunt the eurozone, and some analysts see more downside pressure in the near term.
• According to forex trading, the EUR/USD price tumbled to the 1.0732 support level at the start of trading this week, its lowest in a month, before settling around the 1.0765 level at the time of writing this analysis. 

Recently, the euro plunged after the European Parliament elections strengthened the position of parties sceptical of further European integration. Accordingly, analysts at XM.com say, “Although socialist, liberal and centrist parties are set to retain a majority in the European Parliament, the rise of Eurosceptic nationalists is likely to make it more difficult for lawmakers to agree and move forward with reforms and policies that would give the EU more power.” 

The results show that far-right, and far-right parties are on track to capture nearly a quarter of the seats when the European Parliament next sits, up from a fifth in 2019. “There is still a long way to go, but the implications are clear,” say analysts at Rabobank. Added, “While the centre retains its majority, this is the most right-wing European Parliament ever elected.” For analysts and the broader market, it is events in France that are most worrying. Moreover, most people expected a rightward shift in this election, and the results suggest that Ursula von der Leyen’s European People’s Party will still command a majority in the European Parliament. However, it is events in France that have grabbed the headlines. French President Emmanuel Macron made the “shocking decision” to call early parliamentary elections after his centrist coalition was defeated by Marine Le Pen’s far-right movement in the European Parliament elections. Some analysts say they do not share Macron’s appetite for risk. The euro is the worst performing currency in the G10, trading at 1.075 at the time of writing. 

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Macron’s party only won 15% of the vote, prompting him to call legislative elections for June 30, with a second round of voting to be held on July 7. Consequently, The move is widely seen as a gamble to either question French voters on whether they really want a far-right government or give voters three years of experience with a far-right government before the next French presidential election in 2027. 

As for the next steps for the euro, some analysts say that the euro could fall back to the 1.0700/0720 area once US investors have had a full chance to assess events in European politics. 

Apart from politics, US inflation figures are due out mid-week, and another above consensus reading here will add to the heavy tone in the EUR/USD price. In this regard, Asmara Jamal, economist at Intesa Sanpaolo, says, “Barring any major negative surprises from US inflation data, the euro may struggle to rise again, remaining on the defensive.” 

EUR/USD Technical analysis and forecast: 

The general trend for the euro against the US dollar EUR/USD is still bearish and may remain so as long as it is stable below the 1.0800 support level. Technically, bears may remain in control until the reaction to the announcement of US inflation figures and the tone of the US Federal Reserve policy statement and the bank’s governor Jerome Powell. Currently, the closest support levels for the euro dollar trend are 1.0700 and 1.0630, and breaking the latter level confirms bears’ control and at the same time will move technical indicators towards strong oversold levels. 

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