EUR/USD slips to 1.1630 as Fed drama fades, France risk grows

• EUR/USD retreats 0.10% as Fed independence concerns ease and U.S. durable goods, confidence data support Dollar.
• Political turmoil in France, with looming confidence vote, raises risk of government collapse and IMF intervention.
• German consumer confidence deteriorates, adding pressure on Euro ahead of ECB minutes and EU business surveys.

The EUR/USD retreats a minimal 0.10% on Wednesday as developments about the Federal Reserve's independence dissipated, while the French Prime Minister Bayrou called for a confidence vote. At the time of writing, the pair trades at 1.1631, after hitting a daily high of 1.1647.

The narrative in the financial market remains unchanged, with the White House exerting pressure on the Federal Reserve following Trump's firing of Fed Governor Lisa Cook. Good data in the United States (US) on Tuesday, reflected on an uptick in Durable Goods Orders and the Conference Board (CB) Consumer Confidence, capped the Dollar's fall.

Earlier, the New York Fed President adopted a dovish stance, given his views on the neutral rate, in which the Fed could reduce interest rates and still be restrictive.

Across the pond, a deterioration in consumer confidence in Germany and a headline in The Guardian read, "France on the brink: how a budget deficit became a political crisis," revealing that the government would likely be defeated in a confidence vote, which would exert downward pressure on the Euro.

"France is stuck in economic limbo, without a budget and soon, possibly, without a government," the article said as the election is programed for September 8. France's finance minister Eric Lombard revealed that asking the global lender of last resort, the International Monetary Fund, to intervene "is a risk that is in front of us."

Ahead this week, the US economic docket will feature GDP figures, Initial Jobless Claims and Fed's Governor Christopher Waller remarks. In the European Union (EU), market participants are anticipating the release of the European Central Bank's (ECB) latest meeting minutes, along with data on the EU's Business Climate and Consumer Confidence.

Daily digest market movers: EUR/USD steady as Fed's Williams, Barkin highlight data-driven path

• The EUR/USD was barely reactive, despite remarks by New York Fed President John Williams, who said that rates can fall at some point but emphasized that data would indicate whether it is appropriate to reduce rates, based on the economy's performance.
• In a CNBC interview, Williams added that every meeting "from my perspective is live," adding that risks of employment and inflation are "more in balance." He said the Fed is "going to just have to see how the data play out."
• Thomas Barkin, the Richmond Fed President said his forecast is for a modest adjustment to rates, as he noted, "I see modest movement in the economy."
• The US Dollar Index (DXY), which tracks the performance of the Dollar against a basket of six currencies, is flat at 98.21.
• Expectations that the Fed will reduce rates at the September meeting continued to trend higher. The Prime Marketer Terminal interest rate probability tool had priced a 90% chance of the Fed easing policy by 25 basis points (bps) to 4.00%-4.25%. The ECB is likely to keep rates unchanged, with a 94% probability, and only a 6% chance of a 25-bps cut.

Technical outlook: EUR/USD hold firm around 1.1650

The EUR/USD uptrend remains in place, but the pull back towards the 20-day Simple Moving Average (SMA) at 1.1642, indicates the strong battle between bulls and bears, who remain unable to dictate the pair's direction.

The Relative Strength Index (RSI) turned bearish, hinting that further downside is seen. However, the index remains close to its neutral level, an indication that bears are not out of the woods.

If EUR/USD drops below the 20-day SMA, the next support would be 1.1600, followed by the 100-day SMA near 1.1506. Conversely, if buyers regain control above 1.1650, EUR/USD could retest 1.1700, with the next resistance at 1.1742, the August 22 high.