News from France Weighs on European Financial Markets

According to Reuters, France’s new Prime Minister, Sébastien Lecornu, unexpectedly resigned on Monday just hours after appointing his new cabinet.

This news has underscored the deepening political crisis in France and placed significant pressure on European financial markets – this morning:

→ The euro is weakening. The EUR/USD rate has fallen below 1.1660 and is near September’s low.

→ European shares are falling. The French stock index CAC 40 (France 40 on FXOpen) has dropped by around 2%.

Technical Analysis of the EUR/USD Chart

On 26 September we noted that:
→ fluctuations in the EUR/USD rate over recent months had formed an ascending channel (shown in blue);
→ under seller pressure, the price had moved towards a strong support line (the lower boundary of the channel).

At that time:
→ the rate was at point D;
→ we suggested that the lower boundary of the long-term channel would act as significant support for EUR/USD, noting that clear signs of seller initiative increased the likelihood of an attempt to break the channel bearishly.

Indeed, we subsequently saw the effect of the lower boundary → the price climbed to peak E. However, this emphasised the continuing dominance of bears, as this peak on 1 October extended a series of lower highs and lows A→B→C→D→E.

Today’s euro weakness, driven by the French political crisis:
→ constitutes an important bearish breakout of the long-term ascending channel;
→ provides further grounds for plotting a downward trajectory on the chart (shown in red).

Bulls may hope that further declines will be halted by the 1.1660 level, which has served as support since early September. However, a bearish breakout of this level would open the way for EUR/USD to drop towards the key support at 1.1450.

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