EUR/USD: lots of geopolitical, customs and political news to consider

The euro is gaining some breathing space with the announcement of a new French government, just as the dollar was experiencing a slight correction with the threat of new tariffs brandished by President Trump.

In French politics, the rapid announcement of a Lecornu II government, at least for the moment, rules out the possibility of a return to the polls.

"While the markets are not panicking, the rise in long-term rates reflects a clear expectation: that of a credible fiscal trajectory. The challenge now is twofold: stabilizing the fiscal trajectory to restore market confidence, while freeing up political and financial space to address the real drivers of long-term growth?reindustrialization, competitiveness, employment, etc.," summarise the economists at Asteres.

Mr. Lescure remains at the helm of the Ministry of Finance, and Ms. de Monchalin remains in charge of public accounts. Note the remarkable arrival of Mr. Farandou, head of the SNCF (French National Railways), at the Ministry of Labour. An explicit signal to the markets for a possible renegotiation of the pension issue...

"But a lasting easing of the risk surrounding France on the financial markets seems unlikely because the initial problem, before the political instability, was the fiscal trajectory with an unsustainable deficit. And a temporary suspension of the pension reform would not provide any concrete solution from this perspective. It would only postpone the problem," says Alex Baradez (IG France).

Remember that Moody's will update its rating on France (Aa3) on 24 October and Standard & Poor's (Aa-) on 28 November.

Bruno Colmant, member of the Royal Academy of Belgium, takes a step back and is alarmist about the dangers that the French political and fiscal situation poses for the monetary union. "Behind the French government catastrophe, and the realities of another dissolution or, preferable, a resignation of the French President, there is, of course, the deterioration of the French public debt, but also - because no one is saying it - the euro."

"But how long will a currency cease to be unique if France enters a profound period of political indecision, and certain sovereignist parties, such as the German AfD, which will certainly be in power before the end of the decade, jeopardise monetary cohesion?"

In terms of Friday's stats, currency traders noted a stabilisation of the Consumer Confidence Index (U-Mich) in preliminary data at 56 points.

On the political front, the peace agreement between Hamas and Israel is entering the hostage release phase. 47 of them, including 19 still alive, are to be handed over to the Jewish state this morning.

Right now, the EUR/USD is trading at $1.1569.

KEY CHART ELEMENTS
The previously prevailing bullish oblique (in black on the chart) has now been broken, with a confirming pullback. A negative view is proposed below this oblique, as the Relative Strength Index collapses. The 20-day moving average (in dark blue) is about to break the trajectory of its 50-day counterpart (in orange) at a significant angle.

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 protect your invested capital, we recommend placing a protective stop loss at $1.1751.

The expected return on this forex strategy is 602 pips and the risk of loss is 136 pips.