• EUR/USD price slips as unresolved French political risk undermines confidence in the euro.
• Dollar strength is partly structural, driven by relative decline elsewhere rather than strong national data.
• Fed minutes and ECB commentary may be the next catalysts for a shift in direction.

The EUR/USD price extended its downside on Wednesday, falling to 1.1615, the lowest level since early September. France’s deepening political and fiscal crisis, coupled with the US dollar’s safe-haven flows, has eroded confidence in the euro and pushed investors to the greenback.

The resignation of Prime Minister Lecornu has turned the situation increasingly volatile, pressuring President Macron to call for snap elections or a complete government reset. Rating agencies have warned that the continued political gridlock could result in a potential downgrade of sovereign credit. The risk has dampened investor appetite for euro-denominated risk assets.

Eurozone economic performance is also disappointing as Germany’s factory orders reduced 0.8% in August, while year-on-year orders rose 1.5%. ECB’s Lagarde maintains that disinflation is on track, with the hope that France will meet its budget obligation in time.

On the other hand, the US government shutdown has entered its second week, compounding the concerns posed by macroeconomic data. Congressional leaders from both parties remain in a deadlock. According to the Polymarket, only a 23% probability exists of a breakthrough this week. Investor confidence stays shattered, sending flows to a traditional safe-haven dollar.

Against this backdrop, the US dollar gains traction from external weaknesses rather than domestic strength. The repricing has resulted in a rebound in the dollar but lacks follow-through momentum, especially in the absence of key macro releases. Traders are relying on the Fed and ECB commentary for more impetus.
 

EUR/USD Key Events Ahead

The major focus remains on the FOMC meeting minutes due today. Market participants will be keen for clues about growth risk amid political uncertainty and data delay. Meanwhile, ECB officials, including President Lagarde, are set to speak, and markets will assess their tone on disinflation and fiscal risk.
 

EUR/USD Price Technical Analysis: Sellers Aiming for 1.1575
 

(Click on image to enlarge)

EUR/USD 4-hour chart
 

The EUR/USD 4-hour chart shows the price has broken the key support at 1.1650, heading towards the next key level at 1.1575. The pair shows a short-term bearish trend as the 200-period MA forms a crossover with the 50-period MA. However, the RSI has been around the oversold zone, suggesting a probability of a mild pullback.

The pair could shed off the bearish pressure if it finds a sustained breakout above the 1.1720 level. For now, the immediate hurdle lies at broken support of 1.1650 ahead of 20-period MA near 1.1690.

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