Euro struggles below 1.1200 vs USD amid escalating fiscal and political risks in France

The EUR/GBP exchange rate slipped to approximately 0.8420 at the start of Monday's European trading session. Protests raging in France contributed to the downward pressure on the Euro (EUR) relative to the British Pound (GBP). Later on, ECB policymaker Frank Elderson was scheduled to address the issue. According to Reuters, French President Emmanuel Macron decried the "shocking" violence during demonstrations against escalating living costs in a televised address on Sunday, reacting to one of France's most intense periods of unrest in years.

France witnessed the most extensive protests among several European countries, with Belgium, Italy, and Portugal also experiencing significant unrest. Analysts Kieran Williams of InTouch Capital Markets in London stated that the unrest primarily affects the euro via French bonds. Market participants anticipate the upcoming UK jobs data on Tuesday, followed by the Consumer Price Index (CPI) inflation report on Wednesday.

These economic indicators may solidify the Bank of England's (BoE) decision to raise interest rates for the first time in over three years in November. Dan Hanson, chief UK economist at Bloomberg Economics, predicts a 25-basis-point hike at the central bank's next meeting in November, with another potential increase in February.

Rabobank analysts point out that ECB policymaker Wunsh's recent remarks highlight the central bank's challenge of balancing rate hikes with maintaining price stability. While Wunsh acknowledged that rising longer-dated yields do not automatically preclude further rate hikes, he cautioned that failing to curb inflation would indicate the ECB lagging behind the curve, potentially leading to an overly restrictive monetary policy.

However, Rabobank warns that aggressive tightening could also increase the risk of the ECB being too tight, necessitating careful judgment on the extent of additional policy tightening. The EUR/GBP chart exhibits a clear bearish trend, trading below both the 100-day Simple Moving Average and the 20-day Bollinger Band's middle line.

The pair is approaching the lower Bollinger Band while the Relative Strength Index (RSI) is at 22, indicating that downside pressure is persistent but further selling may become less effective at these levels. Resistance is seen at the 20-day SMA around 0.8505, and support is provided by the 20-day SMA at 0.8385.