Euro Stumbles as French Politics Bite

Key Takeaways:

*French Politics Overshadow Data: Rising bond spreads and a looming no-confidence vote weigh on sentiment.

*Inflation Holds Firm: Headline CPI at 2.1% and core at 2.3% give the ECB little room to ease further.

*ECB Divided: Policymakers split between hawkish warnings and cautious neutrality, leaving markets directionless.

Market Summary:

The euro slipped after a three-day rally as renewed political turbulence in France eclipsed a firmer inflation backdrop. Investors grew uneasy as French short-dated yields climbed above Greek equivalents, reflecting market jitters over a looming no-confidence vote that could destabilize the Eurozone’s second-largest economy.

On the data front, Eurozone inflation offered the European Central Bank a moderately hawkish signal, with August CPI edging up to 2.1% and the core rate holding steady at 2.3%. Yet the ECB’s policy stance remains muddled by internal divisions. Isabel Schnabel warned that inflation risks remain tilted to the upside and saw no justification for further cuts, while Gediminas Simkus struck a more cautious, wait-and-see tone.

This divergence leaves the euro caught between two opposing forces: supportive inflation dynamics that argue for tighter policy and intensifying political risks that threaten investor confidence. Until clarity emerges from France’s political crisis, the currency is likely to remain range-bound and volatile, with sentiment shifting on each fresh headline.

All eyes now turn to the French parliamentary calendar and upcoming ECB commentary. Political outcomes in Paris could prove decisive in setting the euro’s near-term trajectory, while policymakers’ ability to project unity will determine whether markets give more weight to inflation or fragmentation.

Technical Analysis 

EURUSD, H4: 

The EUR/USD on the chart is trading around 1.1640 after pulling back from the 1.1725 resistance zone. Price action shows the pair remains range-bound, with support resting at 1.1585 and deeper downside risk toward 1.1405 if sellers regain control. On the upside, a recovery above 1.1725 would be needed to clear the way for a retest of the 1.1880 resistance level.

Momentum indicators lean bearish. The RSI is at 42, slipping below the neutral 50 mark, which highlights growing downside pressure without yet entering oversold territory. The MACD remains negative with red histogram bars, reflecting sustained bearish momentum.

Overall, EUR/USD is showing signs of renewed weakness, with the bias leaning bearish unless price can reclaim the 1.1725 level to reestablish upward momentum.

Resistance level: 1.1725, 1.1880

Support level:1.1585, 1.1405