The euro is trading 0.5% higher at 1.0776, as markets welcome signs that neither the far left nor the far right will be able to control the French legislature after the second round of voting ends next Sunday. The euro dollar price is then stabilizing around 1.0735 at the time of writing. The euro’s latest performance came after the first round of voting showed Marine Le Pen’s National Rally party not performing as well as expected, with around 34.2% of the vote at the time of writing, while the final exit poll was around 36.2%.

The first round of the French elections may have delivered a less convincing victory for the far right than final polls had suggested, and with other parties now seemingly open to forming alliances in the second round, this is likely to further reduce the far right's chances

The New Popular Front looks set to take around 29%, and Macron’s Ensemble coalition around 22%. The New Popular Front has indicated that it will remove its third-placed candidates, which would deny the National Rally a chance of winning seats in the constituencies where a three-way showdown is likely to occur. More than half of the 577 seats in the parliament, a historically high number, are expected to go to the second round, and a lot of tactical voting is now likely.

For his part, French President Emmanuel Macron called on Sunday for a "broad" democratic alliance against the far right after Le Pen's National Rally party came out on top in the first round of parliamentary elections according to estimates. "In the face of the National Rally, the time has come to build a broad-based republican and democratic alliance for the second round," he said in a statement. He also said that the high turnout in the first round showed "the importance of this vote for all our citizens and the desire to clarify the political situation."

Looking at the economic calendar, the numerous releases and speeches this week could expose EUR/USD to volatility. Additionally, the US ISM manufacturing survey will be released on Monday, which could provide more indications of an economic slowdown. Watch for German inflation figures, also due out on the same day.

Eurozone inflation figures are due out on Tuesday and will be the most important data of the week, although we think that anticipating the French vote results on Sunday will keep any reactionary moves in check. European Central Bank President Christine Lagarde and US Federal Reserve Chairman Jerome Powell will speak at the ECB conference in Sintra, Portugal on Monday and Tuesday. Lagarde’s comments will be important in terms of market expectations for further rate cuts, with debate continuing over whether there will be one or two cuts in the bag over the rest of the year.

Markets will be keen to hear updated views on the possibility of Powell cutting the US rate in September. Consequently, this theme continues into the middle of the week when the Fed releases its minutes of its June 11-12 policy meeting. This is expected to provide more colour for markets on the very important question of interest rates. Also, Wednesday sees the release of the ISM PMI services survey, another potential market-moving release. As a reminder, if the market raises its expectations of a September rate cut after this data and appearances, the dollar could weaken. Any disappointments would strengthen the dollar. The market is currently pricing in a 56% chance of a September rate cut. Furthermore, the highlight of the week will be the US nonfarm payrolls report on Friday. The headline number is expected to come in at 180,000, down from 272,000. Likewise, average hourly earnings are expected to rise 0.3% on a monthly basis in June.

 EUR/USD Technical analysis and forecast:

EUR/USD rallied over the weekend and broke above the descending triangle resistance to suggest a potential rally at the same height as the formation. The chart pattern extends around 90 pips in volume. Technically, the price could still fill the gap to the previous triangle top near 1.0720 before heading higher. So far, the 100 SMA remains below the 200 SMA to suggest that the stronger trend is to the downside or that downward pressure is present.

Once again, the gap between the indicators is narrow enough to suggest a slowdown in downside momentum and a potential bullish crossover.

Furthermore, Stochastic is approaching overbought territory to suggest exhaustion among buyers, so a turn lower would suggest that buyers are in control. Also, the RSI has reached the overbought zone and could be ready to move lower, so the price may follow suit. Ultimately, continued downward pressure could push EURUSD back inside the triangle and test the support level around 1.0675.

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