The market had braced for the worst, but the weekend proved calmer. Riots did not recur across France, ratings agencies did not downgrade the country, and Trump did not start an active war with Iran despite media warnings.
On Saturday, new protests swept France. The interior ministry counted hundreds of thousands on the streets, while unions put the number nearly twice as high. Authorities deployed tens of thousands of police in advance, brought in armored vehicles, helicopters, and water cannons, closed major Paris museums, and permitted only a single agreed route. Police used tear gas in several cities, nearly 1,000 people were detained by evening, and late reports mentioned looting. But the scale fell well short of last week's, when roughly 3,000 shops were ransacked.
This matters for the euro because last week's unrest was the chief source of pressure. Then the single currency was sharply sold and French bonds cheapened. Investors demanded ever-higher compensation for French risk, and the spread to German bunds widened to its highest level since 2011. A calmer weekend removed some of that tension, and the market opened with a gap-up.
Ratings agencies did not add to the stress. Moody's on Friday kept France's rating unchanged—surprising some economists who had expected a downgrade—but kept a negative outlook, reflecting that the 2027 budget with deficit cuts is expected to pass. S&P also left its rating unchanged, with the next review scheduled for the end of November. That is more a postponement than a vote of confidence: Paris still must prove the budget is deliverable, and unions have already called a strike for November 5.
A second relief factor was the Middle East. Trump said the US might go "a bit further" on Iran, and the press reported plans for new strikes after the November 3 midterms. Many media outlets feared an active war would break out over the weekend, but it did not. For the euro area, dependent on energy imports, that is good news: oil did not gain renewed impetus.
US data pleased traders but did not materially help the dollar. US business activity in October remained very high, with manufacturing at its best level in years. Firms hired aggressively, foreign orders grew, and consumer sentiment beat expectations. The odds of an October Fed hike remain low, and markets have already priced a December move, so the strong data changed little. The dollar recently drew support from safe-haven demand, which weakened on a calm start to the week.
While France remains calm and Washington has not moved to a forceful scenario, the euro can hold the gap and consolidate above recent highs. But risks remain. High oil and the budget dispute in Paris could quickly return pressure on the single currency, and this week's Fed and ECB meetings will show whether the market is willing to support the euro further.
Technical picture for EUR/USD
Buyers now need to think about reclaiming 1.1230. Only that would allow targeting a test of 1.1260. From there one can reach 1.1300, but doing so without support from large players will be difficult. On the downside I expect serious buying only around 1.1200. If nobody shows up there, it would be sensible to wait for a new low near 1.1180 or to open longs from 1.1155.
Technical picture for GBP/USD
Pound buyers need to take the nearest resistance at 1.3400. Only that would allow targeting 1.3420, above which further gains will be hard. The far target is the 1.3445 area. On a decline, bears will try to seize control of 1.3360. If they succeed, a break of the range would hit bulls hard and push GBP/USD to a low near 1.3330 with scope to reach 1.3300.