EUR/USD: the euro suffers from France's political mess

The surprise resignation of the short-lived French Prime Minister is plunging the eurozone's second-largest economy into a growing form of political instability. For traders, this reflects an inability to reach agreement between the main parliamentary groups on a budget. The result was a sharp correction in the shares of major banks this morning at the opening in Paris (around -6%).

This shockwave rekindles the specter of a political impasse, with the lack of necessary measures to improve the trajectory of French public finances. "Lecornu's resignation plunges the political scene into uncertainty. Investors fear a domino effect on economic and fiscal policy," says Antoine Andreani, head of equity research at XTB.

This explains the clear tensions over French debt. The spread between the yield on the 10-year French bond and the yield on the same maturity German 10-year bond (the famous "spread"), a gauge of market stress on the French issuer, stands at 86 basis points, or 0.86 percentage points, a level not seen since January.

In a few minutes following the announcement of this resignation, the EUR/USD lost nearly 70 pips.

Until now, the spot price, a barometer of risk appetite, had shown resilience in the hope of seeing the Fed accelerate its monetary easing process.

This outlook is itself supported by figures confirming the deterioration in the health of the US employment situation. In particular, the survey by the private firm ADP, which showed a net loss in the number of jobs in September. It should be noted that investors were deprived of the publication of the NFP (Non Farm Payrolls) report on Friday due to the shutdown. The United States has indeed entered a period of public service shutdown due to a lack of agreement in the Senate on the budget.

In terms of statistics, traders noted the release of the Eurozone PMI indices on Friday. In September, the composite index, a comprehensive measure of private sector activity, stood at 51.1 in final data, a 15-month high. A reading above 50 indicates an expansion in activity. No major statistics are on the agenda today.

Right now, the EUR/USD is trading at $1.1689.

KEY CHART ELEMENTS
The break in the downward sloping line drawn in black does not, at this stage at least, cast doubt on the strength of the primary bullish trend, but raises its share of questions about the need for consolidation in the currency pair. We are once again issuing a neutral opinion on the EUR/USD, wisely positioned within the Bollinger Bands (20; 2.5).

MEDIUM-TERM FORECAST
In light of the key chart factors we have mentioned, our medium-term opinion on the EUR/USD is neutral.

We will maintain this neutral opinion as long as the EUR/USD is positioned between the support at $1.1608 and the resistance at $1.1835.