Euro Weakens as French Government Implodes, Macron Faces New Crisis – Action Forex

Domestic politics dominated global markets today, driving sharp moves in both European and Asian trading sessions. In Europe, political instability in France rattled sentiment, while in Japan, optimism over new leadership sparked a broad equity surge and a dramatic selloff in the Yen.

In European, CAC 40 slumped and Euro is sold off broadly, after French Prime Minister Sebastien Lecornu and his newly formed government resigned just hours after unveiling their cabinet lineup. The collapse, just 14 hours after formation, deepened France’s ongoing political turmoil and marked the shortest-lived administration in modern history.

Lecornu cited the impossibility of governing amid threats from both coalition partners and the opposition to topple his government. The fallout was immediate, with opposition parties calling on President Macron to resign or trigger early elections. The episode underscores growing public fatigue and political fragmentation that risk eroding investor confidence in French assets.

Yet, Yen’s dramatic selloff overshadowed Europe’s turmoil. The currency plunged below 150 per dollar for the first time since early August and touched a record low versus Euro, as Japanese equities soared. Traders rushed into risk assets, betting that Prime Minister-designate Sanae Takaichi’s incoming administration will prioritize fiscal expansion and encourage continued BoJ accommodation.

The move rippled across bond markets, sending short-term JGB yields to two-week lows as traders cut back expectations for further tightening. Market pricing for a BoJ hike by year-end fell sharply to near 40% from 68% at the end of last week, as confidence grew that the central bank will stay on hold through October.

Governor Kazuo Ueda’s cautious tone in recent weeks aligns with this view, suggesting that policymakers see little urgency to resume tightening. With political stability and fiscal stimulus prospects improving, investors appear comfortable re-engaging in carry trades, accelerating Yen’s decline.

For now, Dollar leads as the day’s strongest performer, followed by Loonie and Aussie. At the other end, Yen remains the weakest, trailed by Euro and Swiss Franc, while Sterling and Kiwi hover mid-pack in largely risk-driven trade.

In Europe, at the time of writing, FTSE is up 0.15%. DAX is up 0.25%. CAC is down -1.27%. UK 10-year yield is up 0.044 at 4.739. Germany 10-year yield is up 0.021 at 2.723. Earlier in Asia, Nikkei rose 4.75%. Hong Kong HSI fell -0.67%. China Shanghai SSE rose 0.52%. Singapore Strait Times rose 0.22%. Japan 10-year JGB yield rose 0.015 to 1.680.

ECB’s Lane: No pre-commitment on rate path, policy to stay data-driven

ECB Chief Economist Philip Lane reiterated in a speech today that monetary policy will remain data-driven and meeting-by-meeting, with “no pre-commitment to a particular rate path.” He emphasized said the ECB’s policy decisions will hinge not only on the baseline inflation forecast but also on “shifts in the risk distribution”.

The downside inflation risks outlined in September include a stronger Euro, weaker export demand caused by higher global tariffs, and the possibility of rising market volatility linked to trade tensions.

Conversely, Lane highlighted several upside risks that could keep inflation elevated. These include “fragmentation of global supply chains”; surge in defence and infrastructure spending that boosts medium-term demand; and climate-related disruptions.

He elaborated that persistent Euro movements tends to have “multi-year impact” on both inflation and growth, with the size of the impact depending on its source. Appreciation stemming from external weakness or capital flows tends to depress inflation more sharply. On the other hand, changes driven by domestic demand strength or domestic risk premiums carry a smaller inflationary force.

Eurozone Sentix rises to -5.4, mood brightens from exaggerated pessimism

Investor sentiment in the Eurozone improved in October, with Sentix Investor Confidence Index rising from -9.2 to -5.4, topping forecasts of -7.7. Current Situation Index advanced from -18.8 to -16.0, while Expectations climbed sharply from 0.8 to 5.8.

Sentix said the latest data initially looks like the long-awaited economic turning point, with strong improvements seen across Germany, Austria, and Switzerland as well. However, it cautioned that the improvement may not mark a lasting turnaround. Most country-level readings and the Eurozone composite still sit below August’s levels, implying that September’s pessimism was “negatively exaggerated”.

Meanwhile, Sentix also noted that inflation remains a key worry, with its related index barely rising to -17.75. Still, markets appear to expect that the ECB will maintain a steady policy stance, and perhaps even lean slightly supportive, despite mounting fiscal pressures. Sentix warned that such expectations may have a “limited half-life,” as growing debt levels and persistent inflation could restrain the scope for policy easing in the months ahead.

Eurozone retail sales edge up 0.1% mom in August, momentum muted

Eurozone retail sales rose 0.1% mom in August, matching expectations and signaling only a modest pickup in consumer activity. The increase was driven by 0.3% rise in food, drinks, and tobacco sales and 0.4% gain in automotive fuel, partly offset by a -0.1% decline in non-food product demand.

Across the wider European Union, retail sales were flat on the month. Among member states, Lithuania (+1.7%), Cyprus and Malta (+1.5%), and Sweden (+1.1%) posted the strongest gains, while Romania (-4.0%), Poland (-0.8%), and Luxembourg and Portugal (both -0.7%) recorded notable declines.

BoJ report highlights resilient recovery but tariffs cloud wage, capex outlook

The BoJ’s Regional Economic Report released today painted a mixed picture of recovery, with assessments for eight regions left unchanged and one downgraded. Most local economies were described as “recovering moderately” or “picking up” .

Businesses in some areas reported that they may scale back wage hikes if tariffs begin to bite into profits, a risk that could slow Japan’s nascent wage-led inflation. Still, several regions pointed to ongoing wage pressures from tight labor markets and rising living costs, suggesting that the underlying trend in income growth remains intact for now.

The survey also revealed continued commitment to capital investment, particularly in automation and IT-related projects, as firms seek efficiency gains. However, a number of companies plan to delay or reassess spending amid uncertainty over global demand and the evolving impact of tariffs.

WTI oil recovers ahead of 60 after OPEC+ opts for measured output hike

Oil prices recovered modestly in today after the OPEC+ alliance confirmed a small production increase of 137,000 barrels per day for November, matching the rise announced for October. The restrained decision eased fears of a larger supply boost.

Following Sunday’s ministerial meeting, OPEC+ said the move was made “in view of a steady global economic outlook and current healthy market fundamentals.” The statement emphasized low global inventories as evidence that supply-demand conditions remain tight enough to justify a gradual output approach.

The limited hike contrasts with speculation that major producers—particularly Saudi Arabia and Russia—might push for a faster restoration of supply to reclaim market share. Instead, the decision reflects caution amid volatile demand signals and lingering uncertainty over global growth.

Technically, for WTI oil, some consolidations would be seen above 60.62 temporary low for the near term. But risk will stay on the downside as long as 63.49 minor resistance holds.

Break of 60.62 will resume the whole decline from 78.87. Next target is 100% projection of 71.34 to 61.90 from 66.70 at 57.26. However, firm break of 63.49 will bring stronger rebound back to 66.70 resistance instead.

EUR/GBP Mid-Day Outlook

Daily Pivots: (S1) 0.8704; (P) 0.8717; (R1) 0.8727; More…

EUR/GBP’s fall from 0.8750 resumed by breaking through 0.8688 and intraday bias is back on the downside for 0.8631 support. Decisive break there will indicate near term reversal and turn outlook bearish. On the upside, though, above 0.8728 will bring retest of 0.8750 first. Firm break there will resume the larger rally towards 0.8867 fibonacci level.

In the bigger picture, rise from 0.8221 medium term bottom is seen as a corrective move. While further rally cannot be ruled out, upside should be limited by 61.8% retracement of 0.9267 to 0.8221 at 0.8867. Considering bearish divergence condition in D MACD, firm break of 0.8631 support will be the first sign that this corrective bounce has completed. Sustained trading below 55 W EMA (now at 0.8539) will confirm, and bring retest of 0.8221 low.