Euro turned softer against both Sterling and Swiss Franc today as investors shifted focus to France ahead of a key confidence vote. While Thursday’s ECB rate decision dominates the week’s agenda, political instability in Paris could add fresh downside risk to the single currency.
Prime Minister François Bayrou’s minority government faces almost certain defeat in a no-confidence vote later in the day. If the government falls, it would mark the second collapse in less than a year following the implosion of Michel Barnier’s administration last December. President Emmanuel Macron would then be forced to appoint his fifth prime minister in under two years, a rapid turnover that has undermined investor confidence and compounded concerns over French fiscal credibility.
Beyond France, attention is also turning back to Japan following Prime Minister Shigeru Ishiba’s resignation over the weekend. The leadership race is shaping up between former economic security minister Sanae Takaichi and agriculture minister Shinjiro Koizumi. A recent Nikkei poll showed Takaichi narrowly ahead, with 23% support against Koizumi’s 22%.
If elected, Takaichi would be Japan’s first female prime minister and is viewed as a staunch supporter of “Abenomics.” Her opposition to BoJ rate hikes and advocacy of larger fiscal stimulus have drawn investor attention, as markets weigh the potential implications for policy continuity. Analysts highlight her strong team of bureaucratic allies as a key advantage.
Overall in the currency markets, Yen managed a partial rebound today but remains the weakest currency on the board, followed by Dollar and Euro. Kiwi leads gains, trailed by the Aussie and Swiss Franc. Sterling and Loonie are holding mid-range.
Elsewhere, oil prices rebounded as traders judged OPEC+’s latest output hike to be modest. The group agreed to raise production by 137,000 barrels per day from October, well below prior monthly increases. Also, many members were already exceeding quotas, suggesting the headline boost may add little new supply. Concerns over additional sanctions on Russian crude added to the upward pressure too.
In Europe, at the time of writing, FTSE is up 0.19%. DAX is up 0.43%. CAC is up 0.52%. UK 10-year yield is down -0.022 at 4.631. Germany 10-year yield is down -0.017 at 2.653. Earlier in Asia, Nikkei rose 1.45%. Hong Kong HSI rose 0.85%. China Shanghai SSE rose 0.38%. Singapore Strait times rose 0.03%. Japan 10-year JGB yield fell -0.008 to 1.568.
Eurozone Sentix confidence sinks to five-month low, summer optimism disintegrating at rapid pace
Eurozone investor sentiment deteriorated sharply in September, with the Sentix Confidence Index falling from -3.7 to -9.2, well below expectations of -1.1 and the weakest since April. Current Situation Index weakened to -18.8 from -13.0, while Expectations tumbled to 0.8 from 6.0.
Germany was the clear weak spot. Its investor confidence plunged from -12.8 to -22.1, while Current Situation gauge collapsed from -29.0 to -39.0. Expectations turned negative again, falling from 5.0 to -3.5, highlighting growing pessimism about Europe’s largest economy emerging from recession.
Sentix attributed the downturn to a mix of political and external headwinds: government instability in France, persistent weakness in German industry, an unfavorable tariffs arrangement with the US, and the ongoing war in Ukraine. These factors, it said, are exerting an “oppressive effect” on Eurozone sentiment.
The institute warned that summer optimism has “disintegrated at a rapid pace” and sees little sign of an autumn rebound. With export-oriented sectors facing more pressure under U.S. tariffs and rising concern over sovereign debt — particularly in France — the outlook for the Eurozone remains fragile heading into year-end.
China exports growth slows in August, US flows collapse -33% yoy
China’s trade report for August showed growing pressure from U.S. tariffs. Exports rose 4.4% yoy, below expectations of 5.0% yoy and the slowest pace in six months. Shipments to the U.S. plunged -33.1% yoy, while flows to Southeast Asia jumped 22.5% yoy, suggesting exporters may be rerouting goods through regional partners to cushion losses.
Imports also disappointed, rising just 1.3% yoy versus forecasts of 4.1% yoy. Imports from the U.S. dropped -16% yoy, reflecting both weaker domestic demand and the bite of tariffs. Still, the overall trade surplus widened from USD 98.2B to USD 102.3 B, beating expectations of USD 99.4B.
While the surplus provides headline support, the underlying dynamics are fragile. U.S. President Donald Trump has already threatened a 40% penalty tariff on goods deemed to be transshipped from China, raising questions about how long exporters can sustain the ASEAN workaround. Besides, economists warn that once U.S. tariffs rise above 35%, they become prohibitively high for many Chinese manufacturers.
Washington and Beijing extended their tariff truce by 90 days on August 11, locking in 30% U.S. duties on Chinese goods and 10% Chinese tariffs on U.S. exports. But with no path yet beyond the pause, uncertainty lingers over whether China can maintain export growth as tariff pressure intensifies.
Aussie strength meets Loonie weakness, AUD/CAD targets 0.9128 and above
AUD/CAD resumed its rally from 0.8440 last week, breaking decisively through 0.9041 resistance level. The move reflects diverging fundamentals between Canadian Dollar, which is weighed down by weak domestic data, and Australian Dollar, which is drawing support from stronger consumption and external demand.
For Loonie, the trigger was August’s disappointing jobs report, which reignited expectations that the BoC will resume easing at its September 17 meeting. While markets have not fully priced a rate cut yet, sentiment is shifting toward renewed stimulus. Still, policymakers are likely to wait for the August CPI release on September 16 before making the final call.
Underlying inflation dynamics remain sticky, with CPI common holding at 2.6% yoy for a third consecutive month in July. That has kept some uncertainty in market pricing. But once tariff-driven price pressures ease, the BoC will have scope to bring rates down from the current 2.75% to around 2.00%.
In contrast, the RBA’s easing path looks less certain. Strong consumption data prompted Governor Michele Bullock to caution that fewer cuts may ultimately be delivered. The Australian Dollar has also found support from a sharp rally in Chinese equities, which has helped stabilize sentiment around regional growth prospects.
Technically, AUD/CAD’s rise from 0.8440 should be reversing the whole downtrend from 0.8375. Further rise is expected as long as 0.8992 support holds, to 0.9128 structural resistance first. Firm break there will pave the way to 61.8% projection of 0.8440 to 0.9041 from 0.8902 at 0.9273.
EUR/CHF Mid-Day Outlook
Daily Pivots: (S1) 0.9334; (P) 0.9366; (R1) 0.9381; More….
EUR/CHF’s fall from 0.9394 accelerates lower today and intraday bias stays on the downside for 0.9371. Firm break there will solidify the bearish case that corrective pattern from 0.9218 has completed with three waves up to 0.9452 already. Deeper fall should then be seen to 0.9265 support, and then 0.9204 low. On the upside, above 0.9359 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 0.9394 resistance holds, in case of recovery.
In the bigger picture, the down trend from 0.9204 (2018 high) might still be in progress considering that EUR/CHF is staying well inside the long term falling channel. However, with bullish convergence condition in W MACD, downside potential should be limited in case of another fall. Instead, firm break of 0.9660 resistance will be an important sign of medium term bullish trend reversal.
