EUR/USD, FTSE Forecast: Two trades to watch - Dec 2, 2024

EUR/USD falls amid French political uncertainty

• French government is on the verge of collapse
• Eurozone manufacturing PMI contracts further
• USD rises as Trump threats trade tariffs
• EUR/USD looks to test 1.05

EUR/USD is falling at the start of the week after strong gains last week as the US dollar rebounds and amid French political uncertainty.

France's far-right National Party has given Prime Minister Michel Barnier until today to accept the party's demands for concessions in the proposed Budget, which Barnier is attempting to push through the fragile coalition government.

Barnier is between a rock and a hard place. If he fails to give in, the RN threatens to call a vote of no confidence, which will almost certainly collapse the government. However, if he does give in, high spending will keep the country in an economically fragile position.

French borrowing costs have risen to the highest level against German borrowing costs since the 2012 crisis. The CAC is also falling sharply lower.

Meanwhile, eurozone manufacturing PMI data was confirmed at 45.2, deepening contraction in the sector. The downturn remains widespread, with manufacturing activity deteriorating across major economies, including Germany and France, which recorded the lowest readings.

Separately, the US dollar is rebounding on safe-haven flows after President Trump threatened BRICS countries with 100% trade tariffs should they threaten the USD's dominance.

Attention is also on the Federal Reserve ahead of a busy week for U.S. economic data, terminating with the nonfarm payroll report on Friday. The data comes as the Fed weighs up whether to cut rates this month after two consecutive rate reductions. The market is pricing in a 66% probability of a 25 basis point rate cut in December.

In addition to data, several Fed officials are due to speak this week, including Fed Chair Jerome Powell, on Wednesday.

EUR/USD forecast – technical analysis

EUR/USD rebounded from a low of 1.0330 but failed to retake the 1.06 or 1.07 levels necessary to negate the steep downtrend from 1.12 reached at the end of September. This, combined with the RSI below 50, keeps sellers in the driving seat.

Sellers will look to break below 1.05 to retest 1.0450, the 2023 low.  A break below 1.0330 is needed to create a lower low.

Buyers need to retake 1.06 to have any chance of building a base higher.

FTSE inches higher after strong Chinese manufacturing data, but UK data disappoints

• China’s manufacturing PMI rises to 51.5 & new orders soar
• UK manufacturing PMI falls to 48 in November from 49.9
• FTSE trades within a holding pattern

The FTSE is trading flat as investors weigh off encouraging Chinese manufacturing data, political instability in France, and disappointing UK manufacturing PMIs.

Data from China showed that manufacturing activity grew at the strongest pace in five months. The cakes in manufacturing PMI rose to 51.5 in November when I had a forecast of 50.5. Manufacturers' new orders are growing at the fastest pace in three years, suggesting that recent stimulus efforts are already seeping into the economy.

The good news is helping to lift miners, with Anglo American and Rio Tinto trading around 1% higher.

Meanwhile, the UK manufacturing PMI was slightly more disappointing, sinking to 48 in November, down from 49.9 in October, marking a nine-month low as new orders dry up. Headwinds from a rise in employment taxes following the New Labour government's budget, a 7% rise in the minimum wage, disruption to shipping in the Red Sea, and threats to global goods tariffs have created a challenging environment for manufacturers.

Also, keeping a lid on any gains or concerns over the political situation in France, where Barnier’s government holds on by a thread.

FTSE forecast - technical analysis

The FTSE continues to trade within a familiar range, capped on the upside by 8325 and 8150 on the lower side.

While the FTSE has recovered from the November low of 8000, rising above the 200 SMA and the 50 SMA, buyers will need to break out above 8325 to bring 8400 into target and 8480, the all-time high.

Immediate support is seen at 8230 the 50 SMA. Below here 8150 comes back into play, which is also the 50 SMA.