The EUR/USD currency pair remains stable above the 1.0500 level despite ongoing political upheaval in France. With anticipation building, the European Central Bank (ECB) is set to reduce its Deposit Facility Rate by 25 basis points to 3% in the upcoming week. Market participants are also closely monitoring the upcoming US Nonfarm Payroll (NFP) data for key insights into potential interest rate movements.
Throughout Thursday’s European trading session, EUR/USD experienced a modest uptick as investors digested the fallout from the recent collapse of Michel Barnier’s government, which faced a no-confidence vote from both far-right and left-wing parties. The political crisis has exacerbated France’s economic woes by hampering efforts to address the growing fiscal deficit. Barnier’s proposed budget, which sought to implement €60 billion in tax hikes and spending cuts, was criticized as flawed and detrimental to the public.
The turbulence in the French government is particularly concerning for the Eurozone, which is already grappling with weak economic growth prospects, largely due to sluggish consumer demand and the looming threat of tariffs as the new US administration prepares to take office. Recent economic data from Germany showed a decline in factory orders, with a contraction of 1.5% in October after a substantial 7.2% increase in September, although this was a less severe drop than analysts had initially projected.
Meanwhile, ECB President Christine Lagarde remarked on the growing uncertainties within the Eurozone economy and the elevated geopolitical risks threatening trade. Lagarde’s cautious stance aligns with expectations of a rate cut, as market sentiment predicts a 25 bp reduction at the ECB’s meeting in December.
As the market digests these developments, the US Dollar Index has seen slight declines, hovering around the support level of 106.00 ahead of the crucial NFP data release. Analysts anticipate an addition of 200,000 jobs to the US economy for November, a significant rise from the previous month’s figure impacted by severe weather conditions. The report is expected to affect perceptions of the Federal Reserve’s interest rate strategy, with expectations leaning towards a possible quarter-point reduction in December.
In technical terms, EUR/USD remains fluctuating near the pivotal 1.0500 figure, although the medium-term outlook suggests a continued bearish trend. Recent indicators show a potential easing of the downward momentum, yet any substantial recovery will need to overcome stiff resistance levels above 1.0750. The focus will be on key support at 1.0330 from late November, which will be critical for EURO bulls looking to regain traction.
