**EUR/USD Extends Decline Amid Heightened French Political Uncertainty**
*By FXStreet Editorial Team*
The euro is experiencing continued weakness against the US dollar, with the EUR/USD currency pair extending its decline as political instability in France casts a shadow over market sentiment. Uncertainty surrounding France’s upcoming legislative elections and potential shifts in fiscal policy are triggering investor risk aversion, contributing to increased demand for the safe-haven greenback.
Concerns over far-right gains and a fragmented parliament are impacting investor confidence, exerting downside pressure on the euro. Coupled with cautious tones from the European Central Bank (ECB) and relatively more hawkish positioning from the US Federal Reserve, EUR/USD continues to trend lower, marking significant changes in the FX landscape in the early days of October.
**Current EUR/USD Price Action**
The EUR/USD pair is struggling to retain upward momentum and has dipped further below recent support levels:
– As of the latest trading session (October 7), the pair is trading below the 1.0600 handle.
– This fall follows a pattern of gradual deterioration that began in mid-September, correlating with broad US dollar strength and declining eurozone economic expectations.
Technical indicators are signaling bearish trends:
– The Relative Strength Index (RSI) remains below the 50.00 midline, underscoring negative momentum.
– Moving averages are reflecting bearish crossover patterns on intraday charts.
– Support is currently seen near recent lows around 1.0500, while resistance stands at 1.0650 and 1.0700.
**French Political Developments and Their Market Impact**
Market participants are focusing on domestic political risk originating from France, the eurozone’s second-largest economy. The political landscape is becoming increasingly uncertain ahead of key legislative developments, particularly concerning:
– Upcoming French parliamentary elections in 2025 now seem more contentious.
– Speculation is rising that far-right parties, especially the National Rally (RN), may continue gaining electoral ground.
– A potential stalemate could emerge if no single bloc secures a majority, raising concerns over policy paralysis or instability.
Growing uncertainty has contributed to increased pressure on French government bond yields:
– The spread between French and German 10-year bonds has widened significantly in recent days, an indicator of increased risk premium demanded by investors.
– These rising yields reflect market fears about fiscal instability and the broader implications for the eurozone financial ecosystem.
As a result of these domestic concerns, investor appetite for euro-denominated assets is diminishing:
– Investors seeking stability are gravitating towards the US dollar and other safe-haven assets such as US Treasuries and Japanese yen.
– Selling pressure on the euro is intensifying as capital outflows contribute to a weaker exchange rate.
**Broader Eurozone Economic Outlook Weighs on the Euro**
Beyond French domestic politics, the EUR is also pressured by broader eurozone economic fundamentals which are underwhelming. The following macroeconomic headwinds are dampening the outlook for the euro:
– The eurozone is grappling with stagnating growth, particularly in Germany, where industrial output has remained weak over successive months.
– Business confidence indices, PMI surveys, and consumer sentiment indicators have all pointed to persistent softness across key euro area economies.
Additionally, inflation trends remain mixed:
– Headline inflation in the eurozone is showing signs of moderation due to a drop in energy prices.
– However, core inflation remains sticky in some segments, prompting caution among ECB policymakers.
Even with these persistent inflationary pressures, the ECB has signaled increasing caution regarding further rate hikes:
– President Christine Lagarde and several Governing Council members have indicated that the ECB may already be nearing the end of its tightening cycle.
– Concerns about overtightening amid weakening growth prospects are guiding a more dovish stance moving forward.
As a result, euro interest rate differentials compared to the US are tilting further in favor of the dollar.
**US Dollar Supported by Fed’s Hawkish Positioning**
Concurrently,
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