Insights 
VT 
The Euro received support following positive political developments in France.
EUR/USD may potentially find strong support at 1.160 if certain conditions are met. France’s Prime Minister Sébastien Lecornu has delayed pension reforms, addressing a demand from the Socialist Party.
Political Support from the Socialist Party
The Socialist Party’s backing reduces the likelihood of a no-confidence vote to be successful. With their support, chances have improved for passing a budget, despite tight parliamentary numbers.
The draft budget aims to reduce the deficit from 5.4% to 4.7% this year, though the pension freeze could affect market confidence in long-term fiscal commitments.
The 10-year OAT-Bund spread is now below 80 basis points, its narrowest in a month, making the euro appear less vulnerable.
If Lecornu survives the no-confidence vote, the EUR/USD may rise and potentially establish strong support around 1.160.
Market Reaction to Political Stability
With French Prime Minister Lecornu surviving the no-confidence vote this morning, the immediate political risk has faded, lending support to the Euro. We are seeing EUR/USD firming up around the 1.1600 level, which could become a solid base in the near term. This stability is a welcome change after the uncertainty we saw in late September 2025.
The easing of political tension is quantifiable in the bond market, where the 10-year OAT-Bund spread is now trading at 77 basis points, its tightest in over a month. This sentiment is also seen in the derivatives market, with one-month implied volatility on EUR/USD falling to 7.8% from over 9.5% just last week. This suggests the market is pricing in a calmer period ahead, which cheapens the cost of options.
This situation feels much more controlled than the political turmoil that rocked French markets back in 2022, suggesting the market is not pricing in a systemic threat. However, we must remember that the Eurozone’s September 2025 flash CPI data came in slightly above expectations at 2.8%, meaning the European Central Bank’s work is not done. Therefore, while French politics are stable for now, monetary policy remains a key variable.
Given the new support level and falling volatility, strategies that benefit from the Euro not falling further look appealing. Selling EUR/USD puts with strike prices below 1.1550 could be a way to collect premium while expressing the view that the worst is over for now. For those anticipating a slow grind higher, structuring bull call spreads could offer a defined-risk way to position for a modest rally toward 1.1700.
