June 18, 2024
CURRENCIES
Euro (EUR/USD) analysis:
- Focus shifts to Europe, particularly France, ahead of elections.
- Uncertainty surrounds whether the ECB will act to calm widening bond spreads given France’s debt load.
- EUR/USD fails to capitalize on Monday’s reprieve; downside risks remain.
- Analysis uses chart patterns and key support and resistance levels. For more details, visit our comprehensive education library.
Will the ECB act to calm widening bond spreads?
- With major US data and the FOMC decisions behind us, attention returns to Europe and France.
- France is in the spotlight as the campaign for the parliamentary elections on June 30th intensifies.
- Marine Le Pen’s National Rally party’s rising popularity has unsettled markets, seeking stability and certainty.
- French-German bond spreads highlight the risk premium for nations like Italy and France, with investors favoring safer German bonds.
- ECB’s Chief Economist, Philip Lane, described the recent bond market move as a ‘repricing’ rather than ‘disorderly market dynamics.’
- The ECB has a tool to counter unwarranted bond market fragmentation, but France’s debt-to-GDP ratio of over 110% may complicate qualification for assistance.
EUR/USD attempts to hold 1.0700, but downside risks persist:
- On Monday, EUR/USD tried to lift off the 1.0700 level, but downside risks remain.
- Price action trades below the 200 simple moving average, indicating a potential retest of 1.0700.
- Major support levels are at 1.0600 and possibly 1.0450, the low of the major 2023 decline.
- EU inflation data showed a slight uptick in May, but overall decline continues.
- ZEW economic sentiment disappointed with a reading of 47.5, below expectations of 50 but slightly improved from last month’s 47.1.
- Inflation expectations increased following the slightly hotter May print.
STOCK MARKET
Market projections:
- Evercore’s bull scenario sees the S&P 500 reaching 7,000 by the end of next year.
- The bear scenario could see the index fall to 4,750.
- Emanuel emphasizes the necessity for investors to have an AI strategy.
AI as a market driver:
- AI has been the most significant catalyst pushing markets higher over the past year.
- Despite delayed Federal Reserve rate cuts and slow inflation return, the US economy outperformed expectations.
- Emanuel expects increased volatility as AI continues to drive the bull market.
Strategic recommendations:
- Emanuel recommends a “strangle” options position on the Nasdaq, buying calls and puts at prices higher and lower than current prices, respectively.
- The essential takeaway is the need for an AI trade strategy.
- Possible portfolio tilts include “AI Revolutionaries” and “Small Cap Standouts.”
Importance of an AI strategy:
- Portfolio managers must integrate AI into their process and cannot afford to dismiss the AI discussion.
- In 2023, investors expected a recession and stock market downturn but were surprised by a strong AI-driven rally.
- By June 2024, excuses for missing the AI rally have worn thin.
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