EUR/USD: The specter of total budgetary paralysis dissipates

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The Euro found some fresh air after Sébastien Lecornu’s general policy speech. High point in this speech, the Prime Minister said he wanted to submit to the Assembly the possibility of suspending the pension reform until the next presidential election. Enough to remove the threat of government censorship, and open the prospect of a budget, certainly less ambitious, for the year 2026. Unless a special law will renew the 2025 budget to the nearest euro, which would send a very bad signal to the markets.

All is not yet won, but in any case the specter of total paralysis is dissipating.

“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,” warns Lucile Bembaron, economist at Antares.

“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.”

In terms of statistics yesterday, currency traders took note of the ZEW index of confidence in the German economy, which rose to 39.3 points, although the increase was less sharp 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, however, 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 3.4 points below the previous month’s value.”

To be followed at 2:30 p.m. the Empire State index, the NY Fed’s manufacturing index.

At midday on the foreign exchange market, the Euro was trading against $1.1620 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 1.1626 USD. The price target for our bearish scenario is at 1.1013 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1761 USD.

The expected profitability of this Forex strategy is 613 pips and the risk of loss is 135 pips.

DAILY DATA CHART