EUR/USD extends decline as France political uncertainty weighs

• The Euro falls again to levels below 1.1700 against the US Dollar after recovery attempts found sellers at 1.1720.
• France's political and fiscal crisis is keeping the Euro on the defensive this week.
• EUR/USD bears remain focused on the 1.1645 support area.

EUR/USD is heading south for the second consecutive day on Tuesday. The pair trades near 1.1690 at the time of writing, as France's political and fiscal crisis is keeping investors away from the common currency and prompting the European Central Bank (ECB) to adopt a slightly more dovish tone.

French Prime Minister Sébastien Lecornu shocked markets on Monday with his decision to resign from the government after only 27 days in charge and a few hours after announcing his new cabinet. President Emmanuelle Macron has asked Lecornu to negotiate a way out of the crisis with the governing coalition leaders, but opposition parties on the left and right are calling for a new snap election, and the president's credibility is severely damaged.

In this context, ECB President Christine Lagarde declared on Monday that the disinflationary process is over, while the bank's Vice President Luis de Guindos warned about geopolitical risks and weak domestic growth, suggesting that the possibility of another rate cut is still on the table.

Macroeconomic data released earlier on Tuesday has confirmed those fears, as German Factory Orders contracted against expectations in August. In the US, the Government shutdown enters its seventh day, and Trade Balance figures will be delayed, but a slew of Federal Reserve (Fed) policymakers, including the Vice Chair of Supervision, Michelle Bowman, and US President Donald Trump's new appointment, Stephen Miran, will take the stage and might set the US Dollar's direction.

Daily digest market movers: France's political woes keep weighing on the Euro

• The Euro remains on the back foot, with investors concerned about France's political void and its ability to tackle the country's booming fiscal deficit. The focus will be on President Macron's attempts to resolve the political deadlock, but his chances diminish by the minute. The Euro is likely to struggle in this backdrop.
• Rating agencies have warned that the political standoff could trigger further downgrades of France's sovereign debt, according to news reports by Reuters. France's fiscal debt is nearly twice the European Union's 3% limit, and some agencies have expressed concerns that failure to apply fiscal consolidation measures will boost financing costs.
• Eurozone macroeconomic data has failed to improve the market mood. German Factory Orders figures released on Tuesday have shown a 0.8% decline in August, compared to market expectations of a 1.4% growth, following a 2.7% contraction in July. Year-on-year, orders have increased at a 1.5% rate, after a 3.3% fall in July.
• Later in the day, Bundesbank President and ECB member Joachim Nagel, and the ECB President Christine Lagarde are due to speak and could likely provide further clues on the bank's next monetary policy steps.
• In the US, in the absence of macroeconomic releases, the conferences of Fed officials Raphael Bostic, Neel Kashkari, Michelle Bowman, and Stephen Miran might give fundamental guidance for the US Dollar.

Technical Analysis: EUR/USD key support is at the 1.1645 area

The EUR/USD is on a bearish trend from mid-September highs above 1.1900. The 4-hour chart Relative Strength Index (RSI) has consolidated below the key 50 level, highlighting the bearish momentum, and the Moving Average Convergence Divergence (MACD) remains below the signal line.

The recovery attempt from Monday´s lows near 1.1650 found sellers, and the pair returned below the 1.1700 level during Tuesday's Asian session. Bears are eyeing support at the 1.1645 area (September 25 low). Further down, the September 2 and 3 lows, near 1.1610, and the August 22 and 27 lows, near 1.1575, will come into view..

Upside attempts are likely to be challenged at the descending trendline resistance, now around 1.1730, ahead of the last week's highs at the 1.1765-1.1775 area, and the September 23 and 24 highs, near 1.1820.