EUR/USD extends decline as France political uncertainty weighs
- The Euro falls again to levels below 1.1700 against the US Dollar after recovery attempts found sellers at 1.1720.
- France's political and fiscal crisis is keeping the Euro on the defensive this week.
- EUR/USD bears remain focused on the 1.1645 support area.
EUR/USD is heading south for the second consecutive day on Tuesday. The pair trades near 1.1690 at the time of writing, as France's political and fiscal crisis is keeping investors away from the common currency and prompting the European Central Bank (ECB) to adopt a slightly more dovish tone.
French Prime Minister Sébastien Lecornu shocked markets on Monday with his decision to resign from the government after only 27 days in charge and a few hours after announcing his new cabinet. President Emmanuelle Macron has asked Lecornu to negotiate a way out of the crisis with the governing coalition leaders, but opposition parties on the left and right are calling for a new snap election, and the president's credibility is severely damaged.
In this context, ECB President Christine Lagarde declared on Monday that the disinflationary process is over, while the bank's Vice President Luis de Guindos warned about geopolitical risks and weak domestic growth, suggesting that the possibility of another rate cut is still on the table.
Macroeconomic data released earlier on Tuesday has confirmed those fears, as German Factory Orders contracted against expectations in August. In the US, the Government shutdown enters its seventh day, and Trade Balance figures will be delayed, but a slew of Federal Reserve (Fed) policymakers, including the Vice Chair of Supervision, Michelle Bowman, and US President Donald Trump's new appointment, Stephen Miran, will take the stage and might set the US Dollar's direction.
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.24% | 0.25% | 0.17% | 0.09% | 0.19% | 0.42% | 0.08% | |
| EUR | -0.24% | 0.02% | -0.05% | -0.14% | -0.02% | 0.17% | -0.03% | |
| GBP | -0.25% | -0.02% | -0.08% | -0.16% | 0.00% | 0.12% | -0.05% | |
| JPY | -0.17% | 0.05% | 0.08% | -0.06% | 0.06% | 0.15% | -0.10% | |
| CAD | -0.09% | 0.14% | 0.16% | 0.06% | 0.09% | 0.27% | 0.11% | |
| AUD | -0.19% | 0.02% | -0.01% | -0.06% | -0.09% | 0.05% | -0.05% | |
| NZD | -0.42% | -0.17% | -0.12% | -0.15% | -0.27% | -0.05% | -0.25% | |
| CHF | -0.08% | 0.03% | 0.05% | 0.10% | -0.11% | 0.05% | 0.25% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: France's political woes keep weighing on the Euro
- The Euro remains on the back foot, with investors concerned about France's political void and its ability to tackle the country's booming fiscal deficit. The focus will be on President Macron's attempts to resolve the political deadlock, but his chances diminish by the minute. The Euro is likely to struggle in this backdrop.
- Rating agencies have warned that the political standoff could trigger further downgrades of France's sovereign debt, according to news reports by Reuters. France's fiscal debt is nearly twice the European Union's 3% limit, and some agencies have expressed concerns that failure to apply fiscal consolidation measures will boost financing costs.
- Eurozone macroeconomic data has failed to improve the market mood. German Factory Orders figures released on Tuesday have shown a 0.8% decline in August, compared to 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.
- Later in the day, Bundesbank President and ECB member Joachim Nagel, and the ECB President Christine Lagarde are due to speak and could likely provide further clues on the bank's next monetary policy steps.
- In the US, in the absence of macroeconomic releases, the conferences of Fed officials Raphael Bostic, Neel Kashkari, Michelle Bowman, and Stephen Miran might give fundamental guidance for the US Dollar.
Technical Analysis: EUR/USD key support is at the 1.1645 area
The EUR/USD is on a bearish trend from mid-September highs above 1.1900. The 4-hour chart Relative Strength Index (RSI) has consolidated below the key 50 level, highlighting the bearish momentum, and the Moving Average Convergence Divergence (MACD) remains below the signal line.
The recovery attempt from Monday´s lows near 1.1650 found sellers, and the pair returned below the 1.1700 level during Tuesday's Asian session. Bears are eyeing support at the 1.1645 area (September 25 low). Further down, the September 2 and 3 lows, near 1.1610, and the August 22 and 27 lows, near 1.1575, will come into view..
Upside attempts are likely to be challenged at the descending trendline resistance, now around 1.1730, ahead of the last week's highs at the 1.1765-1.1775 area, and the September 23 and 24 highs, near 1.1820.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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