The Show Goes On: France Chooses Again

#EURUSD

Key zone: 1.1650 - 1.1750

Buy: 1.1800 (after a confident breakdown of 1.1750) ; target 1.1950-1.2000; StopLoss 1.1730

Sell: 1.1600 (on strong negative fundamentals) ; target 1.1450; StopLoss 1.1670

Today François Bayrou (still the acting head of government) plans to bring before the National Assembly a vote of confidence in his cabinet. The vote is scheduled (preliminarily) for 17:00 GMT.

Bayrou’s chances of losing this process are estimated at 90%. After that, Macron will propose new candidates for the post of prime minister, who are likely to be rejected by the opposition.

This issue is far more serious than it may seem. The problem is not in the personality of the French prime minister, or even in the budget of France. The risk of a serious financial crisis for Europe is growing.

If the French government resigns, the left-wing party “Unsubmissive France” (leader Jean-Luc Mélenchon) has already announced that on September 9 it will demand Macron’s removal from power, while a large nationwide strike is already scheduled for September 10.

In addition, representatives of the left forces in the European Parliament have proposed a vote of no confidence in European Commission President Ursula von der Leyen, which could take place as early as October.

Trade unions are also planning mass protests on September 18 against the government’s “austerity policies.” Next, we can expect daily mass actions involving blockades of banks and transport networks, hooliganism – exactly what the French love. At the very least, the country will be paralyzed for several weeks.

In the past two weeks, the yield on French sovereign bonds has been rising. French 10-year bonds are already trading at 3.45%, 2-year bonds around 2.04%, and 30-year bonds at 4.38%.

Let us recall: France’s national debt is currently about €3.35 trillion (roughly 114% of GDP). A further decline in the value of French debt could trigger a fall in other European sovereign bonds, and a general crisis is not far behind. This risk is exacerbated by new U.S. tariffs.

At this point, Bayrou’s resignation has already been priced in. The process of confirming a new prime minister is unlikely to be quick. The maximum negative for the euro will begin if early parliamentary elections are called in France, especially if the opposition demands Macron’s resignation.

Over the next three weeks, the market will have to endure a crisis of political risks from both the euro and the dollar, so EUR/USD will move in the 1.16–1.19 range with increased volatility.

In the short term, a decline to the lower boundary of 1.16 is possible against the backdrop of strikes and impeachment discussions, but before the Fed meeting on September 16–17 a bullish move to the 1.18–1.19 area is likely.

So we act wisely and avoid unnecessary risks.

Profits to y’all!