The Euro has fallen below 1.1700 against the US Dollar and is close to monthly lows at 1.1645. This decline is mainly due to ongoing political and fiscal problems in France. The trend continues for a second day, with the Euro trading around 1.1665, as investors watch speeches from officials at the ECB and the Fed, including ECB President Christine Lagarde. **Political Uncertainty in France** French Prime Minister Sébastien Lecornu unexpectedly resigned, deepening uncertainty and weakening President Macron’s position, leading to calls for a snap election. Lagarde noted the end of the disinflation phase, while ECB Vice President Luis de Guindos recognized geopolitical risks and slow growth, suggesting potential interest rate changes. Further details on monetary policy are expected from Lagarde and Bundesbank President Joachim Nagel. Fed officials like Michelle Bowman and Stephen Miran may also impact the US Dollar’s movement. The Euro is under pressure due to France’s political stalemate and financial issues, which could lead to credit downgrades if not resolved. German factory orders fell by 0.8% in August, contrary to expectations of a 1.4% increase, following a prior decline of 2.7%. ECB officials, including Joachim Nagel and Christine Lagarde, are likely to discuss monetary policies. The EUR/USD pair is showing bearish momentum as it approaches critical support levels, with technical indicators pointing to a risk of further declines. The political crisis in France signals a challenging outlook for the Euro in the coming weeks. With the government in turmoil, the Euro is likely to remain weak against the US Dollar. The gap between French and German 10-year bonds has widened to over 85 basis points, a level we haven’t seen since the sovereign debt concerns of the early 2020s. **Economic Weakness and Market Reactions** This political uncertainty coincides with signs of economic weakness, such as disappointing German factory orders. In contrast, the US economy appears strong, which supports the Dollar. Currently, futures contracts indicate less than a 10% chance of a rate cut by the Fed before the first quarter of 2026, while European swaps markets suggest a 40% chance of an ECB cut in the same timeframe. In this context, it may be wise to look for strategies that benefit from a falling EUR/USD. The most likely direction is downward towards the 1.1645 monthly low. If this level breaks decisively, further declines to around 1.1575, observed in late August, could occur. The ongoing political issues in France point to continued market volatility. The implied volatility for one-month EUR/USD options has risen to its highest level in over a year, making put options a viable choice for those anticipating further declines while managing risk. For those uncertain about the immediate outcome, straddles could capture significant movements in either direction once clarity emerges from Paris. This scenario is reminiscent of past events, especially leading up to the French elections in 2017, when political risks heavily impacted the Euro. However, the current crisis is worsened by France’s difficult financial situation, which rating agencies are closely monitoring. This is not just about politics; it has genuine credit risks for the entire Eurozone. In the short term, all eyes will be on speeches from ECB and Fed officials later today. Any dovish comments from Lagarde could quicken the Euro’s decline, while hawkish remarks from Bowman might strengthen the Dollar even more. These events will be crucial for our strategies in the days ahead. Create your live VT Markets account and start trading now.

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