France Chooses Again – Europe Gets Nervous

#EURUSD

Key zone: 1.1650 - 1.1750

Buy: 1.1800 (after a confident breakdown of 1.1750) ; target 1.1950-1.2000; StopLoss 1.1730

Sell: 1.1600 (on strong negative fundamentals) ; target 1.1450; StopLoss 1.1670

Today, French Prime Minister François Bayrou intends to submit a confidence vote on his cabinet to the National Assembly. The vote is scheduled for 17:00 GMT, and Bayrou’s chance of losing is estimated at 90%. If he resigns, Macron will propose new candidates for prime minister, but the opposition will most likely block them.

This issue is far more serious than it may seem. It goes beyond the figure of the prime minister and is not only about France’s budget. For Europe, the risk of a major financial crisis is growing.

The left-wing party Unsubmissive France, led by Jean-Luc Mélenchon, has already announced that it will demand Macron’s resignation on September 9. A nationwide strike is scheduled for the following day, September 10.

Left deputies in the European Parliament have also proposed a no-confidence vote against European Commission President Ursula von der Leyen, with a possible vote as early as October.

Unions are preparing new protests on September 18 against the government’s “austerity policies.” Daily actions are expected to follow, including transportation and banking disruptions, along with the street unrest that the French are known for. In the coming weeks, the country risks being effectively paralyzed.

The bond market and sovereign debt remain a long-term unresolved issue for France. Yields on French sovereign bonds continue to rise:

• 10-year at 3.45%,
• 2-year at 2.04%,
• 30-year around 4.38%.

With public debt at €3.35 trillion (about 114% of GDP), further declines in the value of French bonds could trigger sell-offs in other eurozone debt, sharply raising systemic risks. Additional pressure comes from new U.S. tariffs.

The impact of French issues on the currency market is mixed. Bayrou’s resignation has already been priced in, but the process of appointing a new prime minister will be neither quick nor simple. The maximum downside risk for the euro would come from early parliamentary elections, especially if the opposition forces Macron’s resignation.

Over the next three weeks, EUR/USD will remain under political risk pressure, with volatility within the 1.16–1.19 range. In the short term, the pair may drop toward the 1.16 lower bound due to strikes and impeachment discussions, but ahead of the Fed meeting on September 16–17, a bullish impulse toward 1.18–1.19 is likely.

So we act wisely and avoid unnecessary risks.

Profits to y’all!