Bearish View
- Sell the EUR/USD pair and set a take-profit at 1.0385.
- Add a stop-loss at 1.0600.
- Timeline: 1-2 days.
Bullish View
- Buy the EUR/USD pair and set a take-profit at 1.0600.
- Add a stop-loss at 1.0385.
The EUR/USD exchange rate retreated sharply as concerns about the French government rose. The pair slipped from 1.0600 to 1.0450, its biggest daily decline in over a week.
France Concerns Remain
The EUR/USD pair and French bond yields retreated. The ten-year yield dropped to 2.90%, its lowest level since October 21.
This price action is happening as concerns that the French government is about to fail rose. Marine le Pen, the influential right-wing figure, threatened to topple Michel Barnier’s government after he failed to meet her demands on a new government.
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She now plans to support a vote of no confidence on Wednesday, which most analysts expect will pass. That move will bring Barnier’s government down, less than three months after he took power.
These are important concerns because France is the second-biggest country in Europe in terms of GDP after Germany. They are also notable because the country’s economy is not doing well, with the manufacturing sector being in a contraction phase.
The EUR/USD pair also retreated after weak economic numbers from the region. In Italy, the manufacturing PMI numbers dropped to 44.5 in November, while in France and Germany, the figures retreated to 43.1 and 43, respectively.
There are also concerns about the Germany economy, where notable companies like Volkswagen are slowing. The company, which employs over 300,000 people in the country, is expected to slash jobs and close factories. Its employees are set to go on strike to protest these layoffs.
Meanwhile, in the United States, the S&P Global manufacturing PMI rose from 48.5 to 49.7 in November. The ISM manufacturing PMI figure jumped from 46.5 to 48.4 in the same period.
In a statement, Raphael Bostic, a Fed official, noted that his options were open for its December meeting. He expects that the bank should continue cutting rates if inflation moves near the 2% target.
EUR/USD Technical Analysis
The EUR/USD exchange rate resumed its downtrend after it retested the important resistance point at 1.0600 on Friday. That movement was part of a break and retest pattern, which is a popular bearish chart pattern.
The pair has formed a death cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other. It has also moved below the Ichimoku cloud indicator.
Therefore, the pair will likely continue falling as concerns about France continues. If this happens, the next point to watch will be at 1.0400.
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