The ongoing political crisis in France has exerted significant pressure on the EURUSD pair. However, the new government has decided to postpone pension reform, a decision that has met with the approval of the socialist faction. It will likely withstand the vote of no confidence. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Fed intends to continue lowering rates.
- The ECB has ended its cycle of monetary expansion.
- The French government will survive the vote of confidence.
- Long positions on the EURUSD pair can be opened with targets of 1.174 and 1.182.
Weekly Euro Fundamental Forecast
When driving through fog, your best course of action is to get out of it as quickly as possible. This requires pressing down hard on the gas pedal. FOMC member Stephen Miran believes that the ongoing trade war is exacerbating economic uncertainty and the risks of a slowdown in the US economy. Therefore, the Fed should lower rates as quickly as possible. The derivatives market indicates a 50 basis point decrease in borrowing costs at one of the two central bank meetings in 2025. This is in conjunction with the rising probability of the French government passing a vote of confidence, which enables EURUSD bulls to push the quotes higher.
Fed Funds Rate Trajectory in 2025
Source: Bloomberg.
Despite the challenges posed by the ongoing trade war and the recent government shutdown, the impact of monetary policy remains a pivotal factor. Jerome Powell’s statement that the slowdown in employment will eventually translate into rising unemployment was echoed by other FOMC members. Christopher Waller has noted that the labor market is weak, and this is sufficient for the Fed to cut rates. Stephen Miran is urging a proactive approach in the face of mounting uncertainty.
In contrast, Europe is experiencing a different sentiment. Bundesbank President Joachim Nagel has indicated that he sees no reason to make changes unless new data emerges that necessitates adjustments. However, the source of this new data is not yet clear. Bank of Estonia Governor Madis Müller has voiced concerns that China’s increasing restrictions on rare earth minerals may lead to supply chain disruptions and elevated inflation rates. It appears that the ECB has officially concluded its cycle of monetary expansion. Given the Federal Reserve’s ongoing policy, the EUR/USD pair is likely to continue its upward trajectory.
French political developments have historically created challenges for bulls. Sébastien Lecornu’s government has opted for the least damaging option in the face of two unfavorable alternatives. In order to survive the vote of confidence, the prime minister agreed to postpone pension reform until 2027 in order to accommodate the socialists. This will cost the country €400 million in 2026 and €1.8 billion in 2027. However, it is important to consider the value of stability. The narrowing of the yield gap between French and German bonds has eased some pressure on the EURUSD rate.
France-Germany 10-Year Yield Spread
Source: Bloomberg.
In this context, as the US and China, as well as Democrats and the US President, escalate tensions, the uncertainty surrounding the US economy is increasing due to the ongoing trade conflict and shutdown. This is prompting the Fed to consider aggressive monetary easing, which is putting pressure on the US dollar. As a result, the euro is growing, driven by expectations of a swift resolution to the political crisis in France.
Weekly EURUSD Trading Plan
Against this backdrop, the EURUSD pair is likely to continue its rally towards 1.174 and 1.182. Long positions formed at 1.1545 and above should be kept open and periodically increased on pullbacks.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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