The euro is unlikely to bounce back unless we see negative news from the US, like economic changes or new tariffs. Uncertainty in French politics is also holding back the euro’s potential recovery. French Prime Minister Lecornu is currently discussing a budget proposal in parliament. This is important for his political future, especially with a no-confidence vote coming up. If the government collapses, the euro may not benefit from any trade tensions between the US and China. In Germany, the ZEW survey is expected to show improvements in economic expectations and the current situation, but this likely won’t significantly affect the euro at the moment. The FXStreet Insights Team gathers market observations from experts to help understand current economic conditions and possible currency changes. French political uncertainty is the biggest factor weighing down the euro. It seems unlikely that the euro will recover until we have more clarity, especially with the no-confidence vote scheduled for Thursday. The market appears nervous, so traders should be cautious about any strength in the euro. This nervousness is reflected in the bond market, where the gap between French 10-year OATs and German Bunds has widened to 85 basis points, a level we haven’t seen since the last debt scare. One-week implied volatility in EUR/USD has jumped to 12.5%, indicating that options traders expect significant price movements around the vote. Be prepared to pay higher premiums for short-term options. Even if tensions between the US and China weaken the dollar, we doubt the euro can rise. The internal political risks in France are too significant for investors to ignore, making the euro more of a funding currency for other trades. We believe it’s better to sell into any minor rallies for now. We’ve seen this situation before, especially before the 2017 French presidential election. Political risks kept the euro low for months until the market was sure of the outcome. A similar situation seems to be happening now, preventing any sustained upward movement. If the French government collapses later this week, any advantages from a broader US-China dispute will be missed. On the other hand, if US tariff risks lessen without any positive news from Paris, EUR/USD could target the 1.150 level. Buying euro puts or setting up bearish option strategies could be a smart way to prepare for this downside risk.

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