Forex overview. Forex analytics. The euro has found its footing – ForexNews.PRO
Glimmers of hope in France and the rapid recovery of American stock indexes allowed the EURUSD to find its footing. The optimism of outgoing Sabastian Lecornou regarding negotiations with the parties on the budget, his willingness to raise the deficit from 4.7% to less than 5% of GDP, as well as the statement by the office of Emmanuel Macron on the choice of a new prime minister within 48 hours calmed the nerves of investors. The yield spread of local bonds with German ones went down, and the euro lifted its head.
In fact, Sebastian Lecorn’s optimism may not be worth a damn. The French parties feel their power. The fifth head of government risks resigning as quickly as his predecessor. Perhaps parliamentary or presidential elections could reassure investors more than another prime minister.
Political uncertainty is hurting the economy. A slowdown in GDP may force the ECB to come to her rescue. Bets have appeared on the futures market that the European Central Bank will ease monetary policy three times in 2026. The chances of such an outcome are estimated at 1%, however, if the strategy works out, the deposit will increase by 30 times.
In fact, Christine Lagarde and her colleagues have already decided everything a long time ago. They have put an end to the cycle of monetary expansion. Moreover, the head of the Bank of Spain, Jose Luis Escriva, said that an increase in rates should not be ruled out. If everything is bad in Paris, then everything is very good in Madrid.
The different speed of the monetary policy of the ECB and the Fed is a key driver underlying the upward trend in the EURUSD. According to the minutes of the September FOMC meeting, officials recognize the risks of a cooling labor market and are ready to continue lowering rates. Derivatives give a 79% probability of two acts of monetary expansion in 2025.
Nevertheless, Barclays notes that hedge funds are set to strengthen the US dollar by the end of the year. They say that the volume of fixed-term contracts for the sale of EURUSD is three times higher than the scale of purchases. I believe the dog is buried in hedging currency risks when buying S&P 500s by non-residents. America is head and shoulders ahead of Europe in the stock market, and the euro is growing thanks to insurance.
Unsurprisingly, the sensitivity of the main currency pair to the dynamics of the broad US stock index is growing by leaps and bounds. As long as investors buy back the failures of the S&P 500, no French euro crisis is scary. The strengthening of the regional currency is holding back the shutdown. It does not allow the Fed to obtain the necessary data to continue the cycle of monetary expansion.
The strategy of buying EURUSD on pullbacks, including in the direction of 1.159, turned out to be correct. A breakout of the resistance at 1.166 will allow us to increase long positions in the main currency pair.
