The Euro (EUR) continues to face selling pressure, falling for the third straight day against the US Dollar (USD). The EUR/USD pair is trading around 1.1635, hovering just above one-month lows near 1.1605, as investors grapple with mounting political uncertainty in France and safe-haven flows into the Dollar. All eyes are now on the FOMC minutes and speeches from key central bank officials, including ECB President Christine Lagarde.
French Political Turmoil Weighs Heavily on the Euro
The Euro remains vulnerable amid a deepening political crisis in France. Pressure is growing on President Emmanuel Macron to call early elections, with dissent rising from within his own party and former allies joining opposition calls for resignation. The situation has rattled markets and prompted warnings from credit rating agencies, raising the risk of a downgrade to France’s sovereign credit rating.
While former Prime Minister Sébastien Lecornu tried to calm tensions by assuring he will present a solution to Macron soon—and noting that a parliamentary dissolution now appears less likely—investor sentiment remains fragile. The Euro has found brief support on these comments, but the broader trend stays firmly bearish.
US Dollar Finds Strength in Risk Aversion and Government Gridlock
Across the Atlantic, political gridlock in Washington is also weighing on risk sentiment. The US government shutdown has entered its second week, with little progress toward resolving the funding deadlock. According to Polymarket, odds of a resolution this week have dropped to just 23%.
Despite the domestic challenges, the US Dollar continues to gain, supported by its safe-haven appeal amid global political instability. The US Dollar Index (DXY) is holding near 99.00, a two-month high, as investors seek shelter from political and fiscal uncertainty.
Lagarde Downplays Inflation Risks, Weak Eurozone Data Adds to Gloom
On Tuesday, ECB President Christine Lagarde reiterated that the disinflation process in the Eurozone is complete, though she expressed hope that France would meet its fiscal commitments and deliver a timely budget.
Economic data continues to disappoint. German factory orders unexpectedly declined 0.8% in August, missing expectations for a 1.4% increase, after falling 2.7% in July. On a year-over-year basis, orders rose 1.5%, but that failed to lift the mood in markets already focused on macro and political headwinds.
Fed Outlook Mixed Ahead of Minutes Release
Meanwhile, Fed officials remain divided on the future path of US monetary policy. Minneapolis Fed President Neel Kashkari warned of a potential rebound in inflation if rates are cut too quickly. In contrast, Fed Governor Stephen Miran, a recent Trump appointee, argued that population growth is driving inflation, not monetary policy, and sees a case for easing.
Markets will closely watch the FOMC minutes for further guidance, though current pricing still favors a rate cut by the end of the month.
Technical Outlook: EUR/USD Eyes Key Support at 1.1610
The EUR/USD technical setup remains weak. On the 4-hour chart, the Relative Strength Index (RSI) is low but not oversold, while the MACD shows continued bearish momentum, with growing red histogram bars below the signal line.
Key support lies at 1.1610, a level tested multiple times in early September. A break below this could expose further downside targets at:
- 1.1575 (August 22 & 27 lows)
- 1.1530 (August 5 low), though this level may not come into play immediately.
To the upside, resistance stands at 1.1645, the prior support zone from late September. Further gains could face strong headwinds near the descending trendline around 1.1720. A sustained move above this would be required to signal a trend reversal and bring 1.1765–1.1775 into focus.
Bottom Line
The EUR/USD remains pinned near key lows, pressured by political instability in France, weak Eurozone data, and safe-haven USD demand. With both FOMC minutes and central bank speeches on the radar, traders should prepare for potential volatility in the sessions ahead.