EUR/USD. Die, But Not Now: Emmanuel Macron Will Soon Decide the Fate of the National Assembly

[Ben Graham]

On Monday, the deputies of the lower house of the French parliament (the National Assembly) are set to support a vote of no confidence in the government of Prime Minister Francois Bayrou. There is little doubt about this, judging by prior statements from key political parties.

The incumbent (for now) head of government needs either the support or at least the abstention of the far-right or left-wing members. Together, they have a total of 353 votes, while the pro-government factions have 210. A simple majority is enough for the vote, so if either the right or the left supports Bayrou, he stays as prime minister. But even before the vote, it is already clear this will not happen. Both the center-right and the left have announced they will vote against the government. This brings snap parliamentary elections a step closer. They may happen—or not.

This is, in fact, the main intrigue: Will Macron dissolve the National Assembly, or will he try again to appoint a prime minister, thereby forming an inherently unstable minority government?

The French prime minister put his job on the line after announcing proposed measures to reduce the budget deficit (nearly 44 billion euros). Bayrou proposed hiking taxes, freezing pension and social benefits indexation, and capping health insurance expenditure. In addition, he suggested scrapping two of the 11 public holidays (May 8 and Easter Monday). Opposition lawmakers criticized the budget plan, after which Bayrou put the government's mandate to a confidence vote.

Let me remind you, Bayrou's predecessor—Michel Barnier—lasted only three months as prime minister, and also lost his position over the budget issue (the 2025 budget). He also used an article of the French Constitution allowing for a special procedure to pass the budget, bypassing parliament. This article can only be used if the government survives a no-confidence vote. Parliament did not support Barnier's cabinet, and he was forced to resign.

Now Bayrou finds himself in a similar situation and, judging by the facts, will likely meet the same fate.

French media, citing Macron's inner circle, report that he is reluctant to dissolve the National Assembly again. He does not want to repeat last year's mistake, when, after early elections, the "Macron coalition" lost, gaining only 162 seats. The lower house was left without a clear majority: the other seats went to the left coalition and the far-right.

If the French president dissolves the National Assembly again, he risks making matters worse for himself. Polls show that the far-right will again get more votes than their opponents. While many analysts are confident that Marine Le Pen's National Front won't achieve an outright majority, they are equally certain that the right will substantially strengthen its position in the next parliament.

It's worth noting that both Marine Le Pen and her party's spokespeople have been clear about pursuing big-spending policies. Experts worry that such an expansionary fiscal policy could put France on a collision course with Brussels, since its deficit already exceeds the level allowed by EU rules. Italy faced a similar problem several years ago when right-wing populists came to power there. The single currency reacted nervously to the standoff between Rome and Brussels back then.

That's why the euro is unlikely to react much to the no-confidence vote against the Bayrou government itself, but will react painfully if the lower house is dissolved.

However, the more likely scenario is that Macron will appoint a new prime minister from his own camp. Analysts also entertain other outcomes—he could appoint a right-wing or moderate left-wing figure. But all these scenarios share the same flaw: none of the resulting governments would have a parliamentary majority. Sooner or later, the president will be forced to call new snap parliamentary elections.

However, this is likely to happen not now but a little later, when Bayrou's successor repeats the fate of his predecessor.

Judging by the behavior of the EUR/USD pair, traders are dominated by these "moderately optimistic" expectations. With the economic calendar almost empty, the pair is once again testing the resistance level at 1.1750, corresponding to the upper Bollinger Band on the D1 timeframe. This indicates that, for now, the market is not concerned about the situation in France.

From a technical perspective, the pair is situated, on all higher timeframes, either at the upper or between the middle and upper lines of the Bollinger Bands, as well as above all the lines of the Ichimoku indicator, which has formed a bullish "Parade of Lines" signal on the H1, H4, and W1 timeframes. All this signals a priority for long positions. Targets for upward movement are 1.1800 and, prospectively, 1.1860 (the upper Bollinger Band on D1).

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