France's Political Crisis Has Not Gone Away

[Redator]

The euro may once again come under pressure after French President Emmanuel Macron made yet another unsuccessful attempt late last week to urge the deeply divided French parliament to ensure stability in the country rather than provoke another government collapse.

On Sunday, the French president announced the formation of a new cabinet. The new (and former) prime minister, Sebastien Lecornu, must now urgently resolve the protracted political crisis by passing the budget. However, he already failed to do so once before, and it is clear that Macron's refusal to make major concessions to his political opponents once again puts the prime minister's future at risk.

Lecornu, who was appointed to the post in September, resigned last week, and was reappointed on Friday. Tomorrow, he will address the National Assembly for the first time as prime minister to present his budget and explain which parts of the president's program he is prepared to sacrifice in order to remain in power.

The political crisis, which erupted after the summer elections, has paralyzed the legislative process. Without an approved budget, France risks procedural chaos — frozen expenditures, delayed social payments, and a loss of investor confidence. Lecornu, whose reputation is built on compromise, must now navigate between the austerity measures demanded by Brussels and the social concessions needed to appease labor unions.

"It is everyone's duty to work for stability, not bet on instability," Macron said. "I ask everyone to pull themselves together and get to work — with both discipline and respect."

It is clear that Lecornu must find a delicate balance among the warring opposition parties in order to withstand pressure from the far right and far left, both of which are calling for snap elections. To achieve this, the prime minister needs to convince both the Socialists and the Republicans to abstain from voting on a no-confidence motion.

Senior figures from both factions expressed outrage over the weekend at Macron's unwillingness to recognize how precarious his position has become, or to abandon his most controversial policies. Socialist leader Olivier Faure said in an interview with La Tribune Dimanche over the weekend that the most likely outcome would be Lecornu's failure.

Both of Lecornu's predecessors — Michel Barnier and Francois Bayrou — were forced to resign following no-confidence votes triggered by budget disputes.

According to experts, the Socialist Party now demands a complete revision of Macron's economic program — including the suspension of the pension reform that raised the retirement age, higher taxes on the wealthy, and permission to increase deficit spending. Centrist and center-right lawmakers oppose such radical measures, although it remains unclear whether they are prepared to vote against the government.

Another government collapse would likely trigger new sell-offs of risk assets, including the euro.

Technical Outlook for EUR/USD

As for the current technical picture of EUR/USD, buyers now need to focus on reclaiming the 1.1630 level. Only this would open the way for a test of 1.1660. From there, the pair could attempt a climb toward 1.1690, though doing so without support from major players will be quite difficult. The ultimate target stands at the 1.1720 level.

In case of a decline, I expect significant buyer activity only near 1.1590. If no large buyers appear there, it would be better to wait for a retest of the 1.1545 low or consider opening long positions from around 1.1510.

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