EUR/USD: the euro is losing ground

The contraction in risk appetite was reflected in the foreign exchange by a confirmation of the short-term decline of the EUR/USD. This rebalancing of forces is linked to the chronic political instability affecting France, an instability reinforced by the surprise resignation of Sebastien Lecornu on Monday.

This political impasse is primarily preventing France from adopting a budget for 2026 and thus correcting the trajectory of its public finances. Goldman Sachs is forecasting a deficit of 5.6% of GDP for this year (compared to 5.5% for the government), but more importantly, 5.4% of GDP for 2026, well above the 4.6% targeted by the resigning Prime Minister, Sebastien Lecornu.

This shockwave rekindles the specter of a political impasse, with the lack of necessary measures to improve the trajectory of France's 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 has once again pushed the French 10-year bond above its Italian counterpart.

"How can we restore confidence in a context of weakened governance?" asks Fidel Martin, Chairman of Exoe. "Companies, investors, and citizens need clear benchmarks and visibility on future economic trends. France, with its strong industrial base and attractiveness on the markets, cannot afford to let uncertainty hamper growth and investment."

Martin remains "convinced that political stability is an essential lever for the smooth functioning of financial markets. Investors aren't betting solely on economic results: they're banking on the predictability and consistency of government decisions. Every extended cabinet vacancy, every surprise reshuffle, acts as a brake on risk appetite and confidence in the French economy."

Tonight at 20:00 (EU time): a chronological account of the discussions that took place at the last Monetary Policy Committee.

Right now, the EUR/USD is trading at $1.1639.

KEY CHART ELEMENTS
The bullish oblique that had prevailed until now (in black on the chart) has now been broken, with a confirmatory pullback. The negative view is proposed below this oblique, while the Relative Strength Index is collapsing.

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

Our entry point is at $1.1615. The price target for our bearish scenario is $1.1013. To preserve the invested capital, we recommend placing a protective stop loss at $1.1786.

The expected return on this Forex strategy is 602 pips and the risk of loss is 171 pips.