Euro Slides as German Output Crumbles, French Politics Unravel

Key Takeaways:

*Euro Weakens to Six-Week Low – The common currency slipped below $1.1610 as growth and political risks deepened across the Eurozone.

*Germany’s Industrial Collapse Signals Recession Risk – A 4.3% output drop, led by an 18.5% plunge in auto production, highlights structural manufacturing weakness.

*French Political Crisis Adds Pressure – PM Lecornu’s rapid resignation stoked fears of policy paralysis, driving French yields toward Italian levels.

Market Summary:

The euro came under renewed pressure, sliding to a six-week low below $1.1610 as Europe’s twin challenges of economic contraction and political instability weighed heavily on sentiment. Germany’s industrial production collapse—down 4.3% in August, the steepest drop in over three years—confirmed fears that the region’s largest economy is again flirting with recession. The 18.5% plunge in auto production highlights the severity of structural headwinds facing Europe’s manufacturing base, while sluggish domestic demand and softening exports compound the region’s woes. With policymakers from the ECB signaling growing comfort with the pace of disinflation, market expectations for additional easing are solidifying, undermining support for the common currency.

France’s political crisis has further eroded investor confidence. The abrupt resignation of Prime Minister Lecornu after mere hours in office has deepened fears of policy paralysis in the Eurozone’s second-largest economy. Yields on French 10-year bonds now trade at parity with Italy’s, a striking signal of market anxiety over fiscal cohesion within the bloc. Despite temporary relief in bond markets on hopes of a new government formation, the euro remains caught between fragile domestic fundamentals and a resurgent U.S. dollar environment.

Looking ahead, the euro’s trajectory will depend largely on whether Berlin and Paris can restore a sense of economic and political stability. Without clear progress, the currency is likely to remain vulnerable, especially as widening yield differentials and diverging policy expectations continue to favor the dollar. For now, the single currency is anchored by structural weakness rather than recovery potential, keeping EUR/USD under sustained downside pressure.

Technical Analysis 

EURUSD, H4: 

The EURUSD pair has broken below its ascending channel, signaling a potential shift from a medium-term uptrend to bearish momentum. After the breakdown, prices extended lower toward the 1.1600 region, with the pair currently finding some temporary support near 1.1585. The moving averages have turned bearish, with the 20-period EMA crossing below the 50-period EMA, reinforcing the downside bias. Immediate resistance lies near 1.1690, followed by a stronger barrier around 1.1815, where the previous lower boundary of the channel may now act as a dynamic resistance.

Momentum indicators suggest limited bullish strength for now that the RSI hovers around 39, reflecting mild oversold conditions, while the MACD remains below the zero line, with its histogram showing persistent selling pressure. A sustained move below 1.1600 could pave the way for a deeper decline toward the next support at 1.1585 and potentially 1.1470. On the flip side, a recovery above 1.1690 would be required to signal a possible end to the recent bearish phase. Overall, the short-term outlook for EURUSD remains weak unless buyers regain control above the 1.1700 handle.

Resistance level: 1.1690, 1.1815

Support level:1.1585, 1.1470