EUR/USD: Watching French political risk - OCBC

Euro (EUR) continued to trade restraint. French PM Bayrou said he would call for a confidence vote on budget (not government) on 8 Sept in an effort to force political parties to take a position on the government's budget proposals in parliament rather than through street protests planned for later that week. EUR was last at 1.1622 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

2-way trades still likely

"The budget risk was supposed to come later in Oct but PM's call to vote on 8 Sep means the national assembly has to make an earlier return from their 2months recess (which was supposed to run till 22 Sep). Last year, a no-confidence vote gamble (although not on budget) saw the exit of former PM Barnier. This is one risk to watch for implication on EUR as any misstep may lead to another election."

"Constitutionally this is possible as France can hold another legislative election after the 1y lock-up period ended in July 2025. Prediction markets already have 90% vote that the current PM will be out by end-Dec. Another political instability unfolding may temporarily weigh on EUR but broader fundamentals should still support EUR, on a buy on dips."

"Daily momentum and RSI indicators are not showing a clear bias. 2-way trades still likely. Support at 1.1610/50 levels (21, 50 DMAs) and 1.1570 levels. Resistance at 1.1730, 1.18 levels."