Political instability in France weakens the euro
The euro began the week under pressure from political risks in France and a stronger US dollar. On Monday, 19 October, the EUR/USD pair fell to around 1.1180 dollars: investors fear that protests and the deteriorating situation of French public finances will increase instability in the eurozone. French bond yields are rising, and the spread between French and German government bond yields is widening.
Yesterday's US statistics were weaker than forecasts. The NAHB housing market index of American homebuilder sentiment fell in October from 32 to 29 points, while analysts expected 31 points. This points to a worsening situation in the housing market. Normally, such a result could weaken the dollar, but on Monday the American currency still strengthened amid European political risks and a recovery in the stock market.
What data to watch today
On Tuesday, 20 October, investors will focus primarily on the following releases:
- ZEW economic sentiment index for Germany and the eurozone. This is one of the main European indicators of the day. Preliminary expectations forecast a decline in the German index from 34.7 to 30.2 points, and the eurozone indicator from 25.8 to 23.6 points. If the actual figures are even lower than forecasts, this will strengthen concerns about economic growth and may put additional pressure on the euro. Stronger figures, on the contrary, could support the currency.
- Housing starts and building permits in the US. The release of these indicators may affect the assessment of the US economy. Strong data could support the dollar and push EUR/USD down, weak data could play in favor of the euro.
- US existing home sales. A result better than expected could strengthen the dollar, while a decline in activity in the residential real estate market could raise doubts about the resilience of the US economy.
What to expect from the euro
In the short term, the euro remains vulnerable due to the situation in France: political uncertainty and higher borrowing costs are heightening investor concerns. Another factor remains the demand for the dollar as a safe-haven asset.
Today's ZEW data could trigger a noticeable market reaction, especially if it deviates from forecasts. However, even good European figures will not necessarily lead to a sustained rise in the euro as long as French risks persist. For EUR/USD to turn upward, a combination of stronger data from Europe, weak US statistics, and a reduction in political tension will be needed.
