French Politics Send EURUSD Below 1.05 Again, With the ECB Helping
EURUSD has fallen below 1.05 again today, with USD buyers returning after Thanksgiving, while French politics are also weighing on the Euro.
The Euro has turned bearish today as we anticipated, with some significant selling pressure, with EUR/GBP and EUR/CHF both down by 0.5%, marking new lows against key rivals, while EUR/USD fell around 1 cent. The price got pretty close to 1.06 on Friday, but retreated just below the 20 daily SMA (gray) and today the price reversed down as we predicted last week.
Political Instability in France Pressuring the Euro
Political turmoil in France is exacerbating the situation, as Michel Barnier struggles to secure an agreement with Marine Le Pen’s party on the budget. The escalating tension has raised concerns about the potential collapse of the French government. This uncertainty has weighed heavily on the Euro early in the session. EUR/USD has now slipped below its 200-hour moving average, signaling a shift in short-term momentum back in favor of sellers.
The technical retreat reinforces a bearish outlook for the pair as traders brace for further volatility. Le Pen has intensified the stakes, warning that her party will back a motion of no confidence unless Barnier takes action by this afternoon. With no clear resolution in sight, the threat of a government collapse looms large.
Should the no-confidence vote proceed, the U.S. Dollar and Swiss Franc are well-positioned to gain further traction as the week unfolds, amplifying the pressure on the Euro. Besides that, the economic weakness continues, with Italian economy in stagnation, while the ECB accelerate the pace of rate cuts.
Italian Q3 GDP Report (Released by Istat – 2 December 2024)
- Q3 Final GDP: 0.0% quarter-on-quarter (q/q), matching the preliminary estimate of 0.0%.
- Q2 GDP: Revised to a slight growth of +0.2%.
- Economic Context:
- Stagnation in Q3 reflects persistent economic challenges in Italy, with subdued growth signaling ongoing structural weaknesses.
- The flat GDP performance underscores sluggish activity across key sectors, aligning with broader Eurozone economic headwinds.
Remarks by ECB Policymaker Mārtiņš Kazāks
- Rate Cut Discussion:
- Indicated the possibility of a larger rate cut in December, emphasizing the need to address shifting economic conditions.
- Highlighted significant uncertainty in decision-making due to mixed economic signals across the Eurozone.
- Inflation Outlook:
- Optimistic that the inflation problem will soon resolve, reflecting improved price dynamics and a gradual return to ECB targets.
- Policy Stance:
- Advocated for continued rate reductions, signaling a dovish approach to monetary policy aimed at sustaining economic recovery and mitigating recession risks.
EUR/USD Live Chart
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