EUR: French government looks likely to fall in September - ING

Hitting EUR/USD late on Monday was the surprise announcement from French Prime Minister François Bayrou that he was calling a vote of confidence in his government's fiscal austerity plans on 8 September. The numbers don't look good in that his centrist party has 210 seats in parliament, while the far left and the far right have a combined 330 seats and have already said they will vote no.

A break below 1.1580/90 may lead to the 1.1500/1520 area

"French government bonds had already been underperforming in an otherwise benign environment for European government debt this summer. The broader question for the euro is whether recent French news destabilises appetite for the euro more broadly, or whether this is an isolated French issue."

"Given the 'push' factors away from the dollar at the moment (pressure on the Fed and the macro justification to cut rates), we're not ready to go all out bearish on EUR/USD over this. But cross rates like EUR/JPY and EUR/CHF can start to come under some pressure as the FX regime shifts away from the low-volatility, benign conditions seen through August."

"Perhaps the largest threat to the euro at present is positioning. Futures data shows both the asset management and leveraged fund communities running large net long positions. Expect a pick up in protective EUR/USD downside positions in the FX options market. A break of support at 1.1580/90 could see follow-through to the 1.1500/1520 area - especially since investors probably added to EUR/USD longs on Friday's dovish tilt from Powell."