Euro Weakens Amid Political Turmoil
EUR/USD remains offered on concerns about France and a risk-off mood
The Euro depreciates for the third consecutive day, reaching levels near 1.1600. The political impasse in France keeps the Euro under pressure. The lack of progress to restore United States government funding is starting to boost the Dollar on risk-averse flows.
EUR/USD's upside attempts have been short-lived. The pair was capped at 1.1635 earlier on Wednesday and retreated again to the 1.1620 area at the time of writing, coming closer to monthly lows at 1.1607. Comments from France's former Prime Minister, Sebastien Lecornu, dismissing the possibility of new elections, eased markets somewhat, although the uncertain political situation in France remains a significant headwind for a meaningful Euro recovery.
The common currency had come under increasing pressure earlier in the day as pressure on French President Emmanuel Macron to call a snap election mounted amid growing criticism from his own ranks. Former allies have joined the demands of opposition parties to call elections or resign, and rating agencies have warned of a further downgrade of France's sovereign credit status if the political impasse drags on.
Across the Atlantic, the political scenario is not much better. United States Senate Democratic and Republican leaders remain unable to find a way to restart funding as the shutdown enters its second week, and hopes of a breakthrough this week have fallen to 23% according to a poll by Polymarket. The lack of progress has started to erode market sentiment, boosting demand for the United States Dollar and other traditional safe havens.
On Wednesday's economic calendar, the minutes of the last Federal Reserve (Fed) meeting will be the main diversion from the political drama. During the European session, European Central Bank (ECB) policymakers, including President Christine Lagarde, will take the stage, and some Fed officials are expected to speak during the United States session.
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.
The growing political uncertainty in France keeps weighing on the Euro this week, while investors' concerns about a prolonged shutdown of the United States federal government have started to hurt market sentiment and boost demand for the safe-haven Dollar. In the absence of key macroeconomic data to alter this view, the bearish EUR/USD trend has further room to go.
On Tuesday, ECB President Christine Lagarde reiterated that the disinflationary process in the Eurozone has been completed and that she is hopeful that France will meet its international commitments and produce a budget in time.
Eurozone data has failed to improve investors' sentiment. German Factory Orders figures showed a 0.8% decline in August, against market expectations of a 1.4% growth, following a 2.7% contraction in July. Year-on-year, orders have increased at a 1.5% rate, after a 3.3% fall in July.
Fed policymakers continue showing their divergences. Minneapolis Fed President Neel Kashkari has warned about a burst of inflation if the bank lowers rates too fast, while the President of the United States’ latest appointment, Fed Governor Stephen Miran, stated that inflation is due to population increases and reiterated that monetary policy needs to ease.
The EUR/USD technical picture reflects strong bearish pressure. The 4-hour chart Relative Strength Index (RSI) is low but not yet at oversold levels, and the Moving Average Convergence Divergence (MACD) remains well below the signal line, with red histogram bars increasing, suggesting that further depreciation is likely.
Bears are now testing support at the 1.1610 area, where the pair was contained on September 2 and 3. Further down, the target would be the August 22 and 27 lows, near 1.1575, and then the August 5 low at 1.1530, although this latter level seems out of reach for this Wednesday.
Upside attempts are likely to be challenged at the previous support area of 1.1645 (September 25 and October 6 lows), ahead of the descending trendline resistance, now around 1.1720. A break of this level would suggest a trend shift and bring last week's highs at the 1.1765–1.1775 area into focus.