The EUR/USD pair has dropped below 1.1600, reaching its lowest point since late August. The Euro is under pressure due to political chaos in France following Prime Minister Lecornu’s unexpected resignation, which is impacting market sentiment. The Euro has weakened against the stronger US Dollar, falling to around 1.1585 during the American session. This reflects a 1.30% decline this week. Meanwhile, the US Dollar Index has hit a two-month high near 99.20 as traders favor the Dollar amid uncertainty.

Technical Analysis Of EUR/USD

From a technical standpoint, the EUR/USD has been on a downward trend since its peak at 1.1918 on September 17. The pair is showing lower highs and lower lows. It is currently below the 21, 50, and 100-day simple moving averages (SMAs), which supports the bearish trend. The relative strength index (RSI) indicates ongoing selling activity, but the pair hasn’t yet entered oversold territory. Key support lies in the 1.1580-1.1560 range. If it closes below this, we might see further declines toward the lows from August. Resistance is found around 1.1648. To initiate any significant recovery, bulls would need to push above the 1.1700 level. Today, the Euro is seeing its strongest gains against the New Zealand Dollar, despite its overall weakness. However, it has experienced considerable declines against several major currencies, including the US Dollar.

Impact Of Political Turmoil In France

The political turmoil in France is the main reason for the Euro’s decline, and this situation is likely more than just a short-term issue. The resignation of a prime minister in a major Eurozone country creates significant uncertainty, weighing heavily on the Euro. This week, the difference between French and German 10-year government bonds has widened by over 15 basis points, indicating that investors are demanding a higher return to hold French debt. This challenge is heightened by a stronger US Dollar, which is not only a response to European issues. Recent data shows that the US economy is doing well, with the preliminary Q3 GDP estimate coming in at an impressive 2.8%, well above what was expected. This robust performance makes it less likely that the Federal Reserve will cut interest rates soon, giving the Dollar an additional edge. For derivative traders, this environment suggests taking a bearish approach to the EUR/USD pair. Buying put options with strike prices below the current support, perhaps around 1.1500, could be a way to profit from further declines while limiting potential losses. Implied volatility in this currency pair has risen to a three-month high, reflecting market anxiety and making options a useful tool for managing uncertainty. The technical setup indicates that further declines are likely, as the pair is trading below all key simple moving averages. We should keep an eye on the 1.1560 level as a critical support zone. A confirmed break below this level in the coming days would likely trigger a new wave of selling, targeting the August lows around 1.1527 and possibly reaching 1.1391. This situation resembles past periods of political instability in the Eurozone from the early 2010s, where news from a single member state could influence the Euro’s direction for weeks. During those times, uncertainty surrounding the fiscal stability of countries like Greece or Italy led to prolonged weakness for the Euro. The current instability in France could have a similar, lasting impact on market sentiment. Looking forward, we need to watch for statements from both the European Central Bank and French political leaders for any signs of stabilization. Any dovish comments from the ECB in response to this political risk would provide another bearish signal for the Euro. Conversely, unexpectedly strong Eurozone inflation data could complicate matters. For now, though, the path of least resistance for EUR/USD appears to be downward. Create your live VT Markets account and start trading now.

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