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The Euro/Dollar maintained a short-term bearish bias, while Sébastien Lecornu, Prime Minister of France’s second largest economic power, will deliver his general policy speech this afternoon. The challenges are clear: escaping censorship, recreating the conditions for dialogue with parliamentarians and getting out of budgetary paralysis, while time is running out for the adoption of the 2026 budget. Unless a special law will renew the 2025 budget to the nearest euro, which would send a very bad signal to the markets.
“Budgetary stabilization constitutes a precondition for any reflection on long-term growth drivers. Finding financial and political room for maneuver would make it possible to reorient the debate towards structural priorities such as competitiveness and reindustrialization, particularly in the face of growing Chinese competition. The markets are not signaling immediate panic, but a slow drift in the French situation.” Lucile Bembaron, economist at Antarès.
“The Moody’s agency should also confirm this on October 24 by downgrading France’s rating. The urgency of providing a clear budgetary trajectory is real: we must not wait for the markets to send a more brutal signal to react. We must free up budgetary space and time for very important substantive issues for France.”
Furthermore, the single currency, a barometer of risk appetite, suffered from a new round in the deleterious tug-of-war between Washington and Beijing.
As a reminder, the American president has threatened to reestablish “massive” 100% customs duties on Chinese imports. This projection then served as a response to Beijing’s announcement the day before of restrictions on access to its rare earths.
“Breaking the truce concluded in the spring, the Sino-American standoff resumed suddenly on October 10,” comments Sébastien Grasset (Auris Gestion). “Donald Trump, like the famous Indonesian volcano spewing lava and ash in a cataclysmic noise, announced a general increase in customs duties to 100% on Chinese imports, in response to restrictions on rare earths. He also canceled his meeting with Xi Jinping at the APEC summit. Beijing responded by imposing port surcharges on American ships and announced that other countermeasures, including targeted duties on certain products, were under consideration.”
As is often the case, Donald Trump then added water to his wine. On Sunday, on his Truth Social network, he posted the following message: “Don’t worry about China, everything will be fine! The highly respected President Xi has just gone through a bad patch. He doesn’t want depression for his country, and neither do I. The United States wants to help China, not harm it!”
On the immediate statistical side, currency investors have just become aware of the ZEW index of confidence in the German economy, which rose to 39.3, although the increase was less strong than expected.
“Experts continue to hope for a recovery in the medium term. Despite continuing global uncertainties and the lack of clarity regarding the implementation of the public investment program, the ZEW indicator recorded a slight increase in October,” comments ZEW President Professor Achim Wambach on the latest survey results. On the scale of the entire Euro Zone, the results are less convincing, due to French budgetary paralysis.
“Penalized by the budgetary conflict in France, expectations for the euro zone show a moderate decline and currently stand at 22.7 points – or minus 3.4 points below the previous month’s value.”
At midday on the foreign exchange market, the Euro was trading against $1.1560 approximately.
KEY GRAPHIC ELEMENTS
The bullish oblique that prevailed until now (in black on the chart) is now broken, with pullback confirmation. The negative view is offered under this oblique, while the relative strength index collapses. The 20-day moving average (in dark blue) is about to break the trajectory of its 50-day counterpart (in orange) at a significant angle.
MEDIUM TERM FORECAST
Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).
Our entry point is at 1.1557 USD. The price target for our bearish scenario is at 1.1013 USD. To preserve the capital invested, we advise you to position a protective stop at 1.1701 USD.
The expected profitability of this Forex strategy is 544 pips and the risk of loss is 144 pips.
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