The EUR/USD experienced only a slight increase on Tuesday, with bullish sentiment barely taking advantage of disappointing U.S. retail sales data. This limited response suggests that uncertainty regarding the upcoming French elections is influencing the market, while technical analysis points to a bearish outlook for the euro.

Fundamental Analysis: May's headline retail sales in the U.S. fell short of expectations, and April's figures were revised downward. Although the key retail control component met expectations for May, April's result was revised from -0.3% to -0.5%. This miss, combined with the downward revision, leads investors to anticipate slower economic growth in the U.S. Consequently, U.S. 10-year Treasury yields (US10YT=RR) declined, and the yield spread between German and U.S. 2-year bonds narrowed. Investors are now pricing in two 25 basis points (bps) Federal Reserve rate cuts in 2024, contrary to the one move suggested by policymakers' latest projections. Despite these shifts, the EUR/USD pair showed only a modestly bullish reaction.

Looking ahead, the initial round of France's elections on June 30 adds to market uncertainty. Concerns about the future government, potential policy changes, and a possible budget crisis are likely to escalate as the election date approaches. This political uncertainty might constrain EUR/USD bulls and favor the bears.

Technical Analysis: Technicals indicate risks to the downside for EUR/USD. Both daily and monthly Relative Strength Indexes (RSIs) are falling, suggesting downward momentum. EUR/USD is currently consolidating after a decline from its high on June 4, which may lead to a continuation of the downward trend. The pair's inability to hold above the daily cloud and various moving averages indicates challenges in maintaining upward gains. A return to April's low before the election is plausible.

Key Observations:

• EUR/USD upward momentum failed despite the U.S. retail sales miss.
• The pair hit 1.0720 in early New York trading after reaching 1.07610 in Asian trading overnight.
• U.S. retail sales for May missed estimates, suggesting potential consumer weakening.
• EUR/USD pierced the daily cloud base, rallied to 1.07617, but then pulled back.
• Slowed USD selling pushed EUR/USD towards 1.0730 late in the day.
• By New York's afternoon, EUR/USD was up by +0.03%, forming a daily doji candle. The doji, along with falling monthly RSIs, signals potential concern for long positions.
• Remarks from Fed officials Kashkari, Barkin, and Daly could impact market risk on Wednesday.

In summary, both fundamental and technical factors highlight a bearish outlook for EUR/USD amidst U.S. economic data and upcoming political events in France.

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