EUR/USD dives as France Prime Minister resigns unexpectedly

EUR/USD has returned to levels above 1.1670 ahead of the US session opening but remains way below the 1.1730 session highs reached during Monday’s Asian session. The unexpected resignation of France’s Prime Minister, Sébastien Lecornu, announced earlier on the day, sent the Euro tumbling across the board.

France’s President’s office announced that Lecornu tendered his resignation on Monday, hours after the new government was announced. Lecornu is the fifth Prime Minister in Macron’s second term, and his resignation leads the country into a deep political crisis. putting the President’s credibility into question.

In the US, attempts to fund the Federal Government failed in the US Senate over the weekend, sending the US government’s closure into the second week. US President Donald Trump has threatened to impose mass layoffs of federal workers if the talks go nowhere and the market starts pricing in a protracted shutdown.

In the economic calendar, Eurozone Retail Sales meet expectations with a minor advance in August. The focus now is on European Central Bank (ECB) President Christine Lagarde, who is expected to speak at an event in Strasbourg. In the US session, Kansas City Federal Reserve (Fed) President Jeffrey Schmid’s conference is the only event worth mentioning.

Daily digest market movers: The Euro plinges on France’s political uncertainty

• The Euro is coming under pressure following the resignation of France’s Prime Minister Lecornu. With the Eurozone’s second-largest economy facing a fiscal crisis, the prospects of a snap election that might give power to populist parties are likely to punish the Euro in the coming sessions.
• Eurozone Retail Sales have met expectations with a 0.1% monthly increase in September and a 1% advance from August last year. These figures come after a 0.4% monthly contraction and a 2.1% year-on-year growth seen in July.
• The election of the pro-stimulus Sanae Takaichi as the new Prime Minister in Japan cast doubt on the Bank of Japan (BoJ) monetary tightening plans and has sent the Japanese Yen (JPY) tumbling, providing an impulse to the US Dollar on an otherwise quiet Asian trading session.
• On Friday, Fed policymakers highlighted their divergences about the monetary policy path. Thump’s latest pick, Stephen Miran, considered that inflation is well-anchored and that the bank has “plenty of space to cut rates,” while Dallas Fed President Lorie Logan warned that price inflation persists and that it might get worse in the near-term.
• Investors, however, remain convinced that the Fed will cut rates at the end of the month. The CME Group’s Fed Watch Tool shows a 95.7% chance of a quarter-point rate cut in October, and an 84% chance of another rate cut in December. This is likely to act as a headwind for the US Dollar’s recovery.

Technical Analysis: EUR/USD is at the 1.1645 support area

The EUR/USD‘s technical picture reveals a renewed selling pressure, with bears focusing on the late-September lows at 1.1645. The 4-hour chart Relative Strength Index (RSI) falls sharply to levels suggesting strong bearish momentum, and the Moving Average Convergence Divergence (MACD) has crossed below the signal line.

The mentioned low at 1.1645 might provide some support following a 0.6% daily sell-off. Further down, the target would be the September 2 and 3 lows, near 1.1610, and the August 22 and 27 lows, near 1.1575.

To the upside, immediate resistance is at the previous support of 1.1685 area (October 2 lows) ahead of the daily highs, at 11.1730, and last week’s highs at the 1.1760-1.1770 area.