EUR/USD: Still Waters Run Deep

[Redator]

Who is more dangerous: the wicked jester or the mad philosopher? The latest political gamble by the president of France borders on irrationality. He continues to repeat the same actions, expecting different outcomes. Sebastien Lecornu has once again become Prime Minister after leading what was the shortest-lived government in French history. His two predecessors, Francois Barnier and Francois Bayrou, were both ousted via votes of no confidence. Will the third time be the charm?

Donald Trump, in contrast, resembles a wicked jester. His threats, imposing tariffs and then rolling them back, resemble a circus act. His behavior even inspired a new trading philosophy—TACO: "Trump Always Caves Out." Signs that he may soon walk back his newly announced 100% tariffs on Chinese imports sent EUR/USD on a rollercoaster ride.

Emmanuel Macron and Donald Trump have effectively become the brooding madman and the malevolent clown—terrorizing the financial markets. In France, all seems calm on the surface, as reflected by the narrowing yield spread between French and German bonds. However, as the saying goes, still waters run deep. Meanwhile, the U.S. tariffs have jolted investors out of their euphoric state. Yet cautiously dovish rhetoric from White House officials suggests that the worst may be over. A new full-scale trade war seems unlikely.

Yield Spread Dynamics: French vs. German Bonds

Peace in France may be illusory. Sebastien Lecornu is attempting to draft a budget that pleases both left-wing socialists and right-wing parties like the National Rally. These opposing groups hold the most seats in parliament, but their demands are polar opposites. One calls for reversing pension reforms, increasing spending, and taxing the wealthy. The other wants snap elections. A renewed no-confidence vote may be just around the corner—a bearish outcome for EUR/USD.

On the other side of the Atlantic: calm after the storm. U.S. Treasury Secretary Scott Bessent has expressed hope that Trump's meeting with Xi Jinping will still take place. The American administration remains open to negotiations with Beijing. Bloomberg reports that China is also willing to relax its recently tightened controls on rare-earth mineral exports, which had initially triggered Trump's outrage.

Thus, the picture across the Atlantic is one of stark contrasts, but investor nerves are stretched to the limit. The euro briefly surged above $1.1600, but bullish momentum proved insufficient to sustain a breakout.

Technical Analysis

On the daily EUR/USD chart, a second consecutive inside bar has formed. This pattern reflects a high degree of market indecision.

Pending orders are advised at:

• 1.1555 for sell positions
• 1.1630 for buy positions

The material has been provided by InstaForex Company - www.instaforex.com