Another 48h - EURUSD Weakness Pushes DXY Higher Today

2024/12/02
Another 48h - EURUSD Weakness Pushes DXY Higher Today
“france's prime minister michel barnier could be overthrown this week!
how does the eur react? the bonds? does the dxy will benefit from this?”



The risk of a political defeat in France by the Barnier government plunged EURUSD into uncertainty this afternoon (CET), Monday, December 2, 2024 - vice versa DXY up. Personally, I didn't expect this - that`s why I didn't write about this topic last week. Because I assumed it would be a storm in a teacup? But it seems like that I thought wrong! Concerned about the turn of events and the government's forcible adoption of the Social Security Financing Law (PLFSS), traders and/or investors turned away from the euro, which consequently sent French bond yields higher. The interest rate on FR10Y rose to 2.92% in the afternoon and its German counterpart, DE10Y considered a European benchmark, was at 2.04% in the afternoon. The interest rate difference (the “spread”) increased to 88 basis points (0.87%). France's market risk premium is currently close to 90 basis points, a high reached last week as the fall of the Barnier government appeared to be approaching.

The widening of the “spread” between French and German interest rates proves the function of currencies and government bonds - and in this case the reaction is correct (textbook). The EUR falls and the yield rises - great learning example, my readers. The heart and/or mind of a coach, trainer, teacher laughs - while my carotid arteries are tense and trying to calm myself down. The current price action reflects the trust and/or rather the mistrust that large international creditors, as well as traders and investors (like you and me), especially Chinese and Americans in particular currently have no trust in our common currency, the euro, and/or the French and/or our German economy - on the contrary.

We in the Eurozone have no chance against the USA - again with Trump back in office from 2025 - and also China; as far as fiscal policy and/or economic policy is concerned, because of the euro and because of the ECB's monetary policy. But going into this issue in more detail at this point would take us too far. That's why we operate with the facts as they are - it is how it is - the euro exists and the ECB will not dissolve itself or our common currency. Which is why France FR10Y now borrows more expensively than Spain ES10Y and/or Portugal PT10Y , two countries that were the weakest link in Europe. If France had its own currency, it would in no way affect other nations and countries, such as i.e. the Czechs EURCZK , Poland EURPLN , and/or Hungary EURHUF and EURSEK Sweden. France's borrowing costs are now close to those of Greece GR10Y , a country that was almost bankrupt about fifteen years ago. The “spread” between French FR10Y & DE10Y German interest rates is now close to the level of 2012, when the eurozone was threatened with collapse due to the near-bankruptcy of Greece GR10Y .

• Who Will Takin` Over The Terrain Between The Annual Highs?
  

This was the learning question of last week. And we have to say very clearly: "It was the bears!" Because on all 5 trading days of last week the bears recaptured the current territory in the DXY . Whether this is a medium-term trend reversal for the coming days, even weeks? Or was it just a week of consolidation to continue rising? That remains to be seen.

“My peculiarity is that I don't have a particular style of investing or, more exactly, I try to change my style to fit the conditions.”
George Soros

• Will the bulls recapture the terrain above 106.517 points again?
  
• Will the bears recapture the terrain under 104.447 points again?
  

The price action between 107.348 points (Annual Year High 2023 from 2023/10/03) and/or 106.517 points (1st Annual Year High 2024 from 2024/04/16) are groundbreaking. Last week the bears took over. Pathbreaking for this week, maybe even by the end of the year, after DXY closed at 105.782 points last weekend, is even the first annual high of 2024 and/or the upper trend line of the w trend reversal formation with 104.447 points from 2024/08/01. Because a price action above would give the US bulls confirmation that the rally from the annual low in 2024 to more or less new annual highs in 2024 and/or 2023 is continuing. While a price action back below into the w trend reversal formation should please the US bears again. And we must have to argue that all the price action of the last few days, the last few weeks, since the end of September 2024, is in danger of running out of steam. And we would have to assume a lower DXY .


Due to the problems in France briefly described above, and the corresponding weakness of the EURUSD , the DXY was actually briefly traded above 106.517 points by investors and/or traders during the day. Today, on monday, 106.731 points was the highest sentiment for the US Bulls; vice versa, the highest feelings for EUR bears. The first downward trend line of this year 2024 is at just over 106 points this week - the second downward trend line of 2024 is at just over 105 points. However, I would like to hold back on technical price action zones before a decision has been made regarding France. So we'll just wait and see what happens tomorrow on Tuesday...


With best wishes
and with good intentions!
Aaron



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