EURUSD pair extended its downward momentum on Wednesday, sliding below 1.1585 in early European trading, marking its weakest level in over three weeks. The currency pair’s sharp decline is being fueled by escalating political instability in France and deteriorating consumer confidence in Germany, overshadowing the impact of a slightly weaker US Dollar driven by President Trump’s ongoing battle with the Federal Reserve.
French Political Crisis Pressures the Euro
The primary drag on the Euro is the growing political uncertainty in France. Prime Minister Francoise Bayrou’s minority government failed to secure backing for its planned spending cuts ahead of the crucial September 8 confidence vote. This setback has increased fears of a government collapse and opened the door for eurosceptic opposition rhetoric, a development that is rattling investor confidence in the Eurozone’s second-largest economy.
This turmoil has raised concerns about the region’s fiscal stability and added pressure to the common currency at a time when the European Central Bank (ECB) is already navigating sluggish growth and subdued inflation.
Trump-Fed Tensions Limit Dollar Gains
Despite the Euro’s weakness, the Dollar’s upside remains limited by the unprecedented political storm in Washington. President Donald Trump’s aggressive attempts to oust Fed Governor Lisa Cook in favor of a more dovish monetary stance have sparked legal battles and further eroded trust in the Fed’s independence.
This institutional conflict has made investors cautious about US assets, preventing the Dollar from fully capitalizing on the Euro’s sharp drop. However, the Euro’s bearish sentiment is proving strong enough to drive the pair lower regardless.
Weak German Data Deepens Eurozone Concerns
Adding to the Euro’s struggles, the German GfK Consumer Confidence Index slumped to -23.6 in August, down from a revised -21.7. The report highlights growing pessimism about job security and inflation risks among German households, painting a gloomy picture of the region’s largest economy.
This deterioration reinforces expectations that the ECB will maintain its cautious policy stance, leaving the Euro vulnerable to further downside pressures in the short term.
Mixed US Data Provides Limited Support
On the US front, Tuesday’s Durable Goods Orders showed a smaller-than-expected drop of 2.8%, while core orders excluding aircraft surprised to the upside with a 1.1% increase. Although these figures offered the Dollar some relief, they were not strong enough to trigger a full rebound given the uncertainty surrounding the Fed.
Consumer confidence, measured by the Conference Board Index, dipped slightly to 97.4 but still outperformed market expectations, signaling that consumer resilience in the US remains intact for now.
Technical Outlook for EURUSD
From a technical perspective, EURUSD decisive break below 1.1600 signals a continuation of the bearish trend. The next support is seen near 1.1550, with further downside potential toward 1.1500 if selling pressure intensifies. On the upside, 1.1635-1.1650 remains the first key resistance zone to watch.
Market Focus Ahead
Looking forward, the market will keep a close eye on developments in France’s political situation, which will likely remain a key driver of Euro sentiment. Additionally, traders are awaiting Nvidia’s quarterly earnings, expected later Wednesday, as a critical indicator for overall market risk appetite, which could indirectly influence currency flows.
Conclusion
The Euro’s sharp decline reflects a confluence of political instability in France, weak German sentiment data, and bearish technical dynamics, all of which are reinforcing a negative outlook for the currency in the short term. While the Dollar faces its own headwinds from political interference at the Fed, the imbalance of risks suggests that EURUSD could remain under pressure heading into September.
