EUR/USD Price Forecast: Sustained Bullish Momentum Above 1.1600, but French Political Instability May Curb Further Gains
By Haresh Menghani, FXStreet
The EUR/USD currency pair continues to maintain a positive tone, with the euro showing resilience above the 1.1600 handle. The bullish sentiment is primarily supported by improved risk appetite worldwide and gains in European benchmarks. However, the ongoing political uncertainty in France, fueled by domestic instability and policy concerns, poses potential headwinds for the common currency, possibly restricting any aggressive upward momentum in the near term.
Current Market Overview and Technical Landscape
The currency pair shows signs of stabilizing after recently reclaiming the 1.1600 level, a critical psychological and technical zone. This recovery comes after periods of downside pressure which threatened to push the pair further away from recent highs. The sustained move beyond 1.1600 reflects a growing interest in euro-denominated assets despite global macroeconomic pressures.
Key technical indicators continue to offer mixed signals, with short-term gains holding strong but medium-term uncertainty lingering. A closer examination of price action suggests:
• The EUR/USD pair is trading near the upper end of the recent range, retaining a short-term bullish bias.
• Support lies at the recent swing low near 1.1570, which could act as a floor in case of minor pullbacks.
• The 50-period exponential moving average (EMA) on the 4-hour chart is slightly below the current market price, suggesting bulls remain in control for now.
• Momentum indicators such as the Relative Strength Index (RSI) continue to hover in neutral-to-bullish territory, indicating that buyers are not yet overextended.
Despite the technical strength, the euro’s rally faces a bottleneck due to political concerns in France. Recent developments in French politics could create volatility in euro-related trading, particularly as investors weigh the implications on fiscal policy and broader Eurozone cohesion.
France’s Political Turmoil and its Economic Implications
France is currently facing significant political turbulence, with growing divisions within the ruling party and opposition pressure mounting across policy issues, ranging from pensions reform to immigration and fiscal management. For currency traders, this instability is not just a local story — it poses wider implications for investor sentiment toward the Eurozone.
• Investors often view France as a bellwether for political risks in Europe. Any instability in the country tends to spill over into broader euro valuations.
• Diminished confidence in the French government’s ability to implement coherent policies may raise questions about the Eurozone’s recovery outlook.
• French bond spreads — a key measure of risk — may widen relative to German bunds, placing additional downside pressure on the euro.
At the same time, rising dissent in various French institutions could undermine the European Central Bank’s ability to maintain cohesion across fiscal policy narratives in the block. While the ECB remains committed to price stability and gradually exiting accommodative monetary policy, divergence among member states can complicate policy transmission mechanisms.
U.S. Dollar Dynamics: A Mixed Outlook
The U.S. dollar index (DXY), which tracks the dollar against a basket of major currencies, has shown some softness in recent sessions, helping provide tailwinds to risk-sensitive assets like the euro. A few key factors have shaped the dollar’s trajectory recently:
• Softer-than-expected inflation readings have tempered expectations for aggressive Federal Reserve rate hikes.
• Recent dovish commentary from Fed officials has reinforced the view that rates may remain stable at current levels.
• Surprisingly weak data from the labor market and manufacturing sector has generated mixed sentiment toward the greenback.
Overall, the reduced appeal of the U.S. dollar, driven by shifting rate expectations and weaker economic data, creates room for the euro to capitalize — at least in the short term. However, this dynamic could shift quickly if economic prints in the U.S. begin to exceed expectations once more.
Macroeconomic Drivers at Play
Alongside political developments
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