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Weekly outlook: French election outcome eases market tensions, US CPI on deck 

Alejandro Zambrano Alejandro Zambrano 08/07/2024
Weekly outlook: French election outcome eases market tensions, US CPI on deck  Weekly outlook: French election outcome eases market tensions, US CPI on deck 
Weekly outlook: French election outcome eases market tensions, US CPI on deck  Alejandro Zambrano

The markets are sighing a bit of relief following the outcome of the French election, where no party received a majority. The far-right National Rally received 143 seats, falling short of the 289 seats needed for a majority. This party, which was anticipated to spook the markets if they gained too much power as it seemed possible in the first round of voting, failed to do so.
 

Instead, the New Popular Front, a left-wing coalition, secured 182 seats, but again, not enough for a majority. Some market experts suggest that the situation remains uncertain, but the reality is different. With Macron's Ensemble Party holding 168 seats and Les Républicains at 45 seats, no single party is strong enough to push through significant changes. Macron's party might collaborate with the New Popular Front on some initiatives, but substantial changes in France are unlikely, which is favourable for the markets.
 

The CAC 40 is up, and last week, we anticipated that traders would buy on dips, a strategy that is proving successful and instilling confidence in the market.
 

The French bank Société Générale, one of the worst-hit institutions, has continued its recovery but still needs to climb another 15% to reach its May high. The stock is likely to continue rising following the election, though volatility remains a constant factor. The bullish trend is expected to hold as long as prices stay above the June low of 21.63.
 

Last week, we learned that the non-farm payrolls met expectations, but that annual wage inflation remains high at 3.9%. However, we should question whether the labour market should be the primary focus for decision-making, as it is a lagging indicator. Both ISM figures dropped markedly, with ISM Services offering the biggest surprise, falling to 48.8—the first contraction since May 2020—instead of growing by 52.7. ISM Manufacturing also declined to 48.5 versus the anticipated 49.1.
 

In addition, continuing jobless claims reached their highest level since March, marking the ninth week of increases, with 1.85 million people remaining jobless versus the 1.84 million anticipated. This data indicates that the US economy continues to cool, which could eventually trigger a significant market reaction. Instead, the Nasdaq 100 has reached new all-time highs, while riskier assets like Bitcoin have collapsed, and FX markets remain range-bound except for the strong trend in JPY.  

 

Events

 

All times in BST

Tuesday: 15:00: Jerome Powell, head of the central bank, testifies.

Wednesday: 02:30: Chinese inflation figures (anticipated to increase from 0.3% to 0.4%), 03:00: New Zealand central bank rate meeting (rates expected to remain unchanged at 5.5%), and 15:00: Jerome Powell testifies again.

Thursday: 13:30: US inflation data (annual CPI expected to decline from 3.3% to 3.1%) and Jobless claims data (expected to remain similar to last week’s level at 236K versus 238K).

Friday: 13:30: PPI numbers (less attention due to steady recent trends), and 15:00: Consumer sentiment data.

 

CAC 40 (FRA40)

The long-term outlook remains upwards as long as above 7,278, and the index could possibly dip to last week's low but that remains unlikely for now. The next resistance levels are 7,914, followed by 8,200.
 

 

EUR/USD

The pair continues to trade sideways between 1.0654 and 1.0912. A breakout from this range is needed to see a new major trend emerge. Until that happens, the price will be stuck between these two levels.
 

 

GBP/USD

The pair has breached a long-term downtrend line, and if it can establish itself above 1.2821, it could possibly push towards 1.2889. If it manages to break above that level, it may go up to 1.3000 and higher over the next couple of weeks. In the short-term, the trend will remain upwards above 1.2753.
 

 

AUD/USD

Last week, the pair breached a rectangle pattern and as long as the price stays above 0.6665, it could push towards 0.6859 over the next couple of weeks.
 

 

USD/JPY

The pair is pushing back against the uptrend, but bulls remain in control as long as the price remains above 159.18. It has the potential to reach 161.95, followed by 163 and 163.59.
 

 

Gold (XAUUSD)

Gold prices breached the triangle pattern we discussed last week, and the short-term trend is now up above 2,317. The pattern suggests gold prices could reach 2,510 over the next couple of weeks.
 

 

Crude oil (BRENT)

Crude oil prices remain stuck in a large triangle between 76.56 and 91.73, making it hard to have strong view on prices. The very short-term trend will remain bullish between 83.20.
 

 

Nasdaq 100 (NAS100)

The NASDAQ 100 is in a strong uptrend despite recent weak US data. For now, the trend remains bullish above 19,900.
 

 

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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