EUR/USD Slides on French Political Turmoil and USD Rebound, Lagarde/Fed Speakers Up Next

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EUR/USD continued its slide this morning as a combination of US Dollar strength and concerns around the French political drama rambled on.

The most recent news indicates that President Macron has given the outgoing Prime Minister, Sebastien Lecornu, until Wednesday evening to try and get the divided parliament to agree on a new prime minister.

It is unclear what will happen if Lecornu is unsuccessful, but the likely choices would be either appointing someone who is an expert but not a politician (a technocrat) or calling for early elections.

Resurgent US Dollar Keeps EUR/USD on the Back Foot

The US Dollar has surprised many by its resilience over the past two weeks. What could be the driving force of the Greenback stubbornness at the moment? Let us take a look.

One of the reasons benefitting the US Dollar may be down to the one-week interest rate which is rather expensive. The current rate rests near 4.15%. With a lack of high impact US data, market participants appear to be staying away from the loading up on US Dollar short positions.

Market participants may have also changed their outlook due to an IMF report last week. The prevailing theory of late was that Central Banks were the sellers of US Dollars in April and May, however the IMF data showed the dollar’s share in bank reserves remained about 57% in the second quarter of 2025. That suggests something else could be at work and maybe it was the private sector dumping US Dollar during Q2.

The US Government shutdown has not had the impact many market participants had hoped it would. I think many expected the US Dollar to slide if the shutdown drags on.

The latest predictions show that people are slightly less worried that this shutdown will become the longest ever (which would be more than 35 days); the chance of that happening is now down to 22%.

Nevertheless, markets are scheduled to hear from several officials from the Federal Reserve today, including Bostic, Bowman, and Miran, all speaking between 4:00 PM and 4:30 PM Central European Time (CET).

However, I don't expect their comments to significantly change the market's strong belief that the Fed will cut interest rates two more times before the end of the year.

As things stand, markets are still pricing in around 44.5 bps of rate cuts through December 2025.

Source: LSEG

Technical Analysis - EUR/USD

From a technical standpoint, EUR/USD is approaching a key confluence level which could prove key to the pair's next move.

EUR/USD had broken above a descending trendline from the YTD high, before pushing lower. However, it is approaching the medium term ascending trendline which coincides with a retest of the descending trendline and the 100-day MA around the 1.1626 handle.

A break of this level could see the start of a deeper pullback toward the trendline touch and swing low on August 1, resting just below the pivot price of 1.1450.

Before that, there is support at 1.1584 and 1.1528 which could come into play and provide some short-term relief.

A move higher from here faces resistance at 1.1700 before the 1.1800 swing high and YTD high at 1.1918 comes into focus.

EUR/USD Daily Chart, October 7, 2025

Source: TradingView.com (click to enlarge)

Client Sentiment Data - EUR/USD

Looking at OANDA client sentiment data and market participants are short on the EUR/USD Index with 61% of traders net-short. I prefer to take a contrarian view toward crowd sentiment and thus the fact that so many traders are short means EUR/USD could rise in the near-term.

Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

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