The EUR/USD pair exhibits a strengthening trend, reaching approximately 1.1215 during the Asian session on Thursday. Concerns regarding French debt may limit the potential appreciation of the Euro. US CPI increased by 3.7% year-over-year in September, while the core CPI experienced a rise of 2.6% in the same timeframe. The EUR/USD pair strengthens, approaching 1.1215 during the Asian trading hours on Thursday. However, the potential upside for the major pair may be constrained by ongoing apprehensions regarding France’s fiscal stability. Attention will be focused on the US September Producer Price Index and Retail Sales data scheduled for release later on Thursday. French bonds have experienced significant declines amid a recent global selloff, as traders express concerns that political manoeuvring in anticipation of next year’s presidential election could obstruct initiatives aimed at mitigating the country’s substantial deficit. ECB President Christine Lagarde indicated that France ought to address its debt challenges via fiscal consolidation, thereby alleviating concerns regarding the possibility of the central bank initiating purchases of French bonds to manage yields.
In the United States, the Consumer Price Index, which serves as a comprehensive indicator of the costs associated with goods and services within the economy, increased by 0.6% month-over-month in September. This development brings the year-over-year rate to 3.7%, as reported by the Bureau of Labour Statistics on Wednesday. Economists anticipated respective increases of 0.6% and 3.6%. The core CPI, excluding the more volatile food and energy sectors, increased by 0.3% for the month and showed an annual rise of 2.6%, surpassing the respective estimates of 0.2% and 2.5%. The key US inflation report has bolstered the Fed’s decision to increase interest rates in the October policy meeting. Futures traders increased the probability of a rate hike during the upcoming Federal Open Market Committee meeting on October 27-28 to approximately 31.6%, as indicated by the CME Group’s FedWatch tool. San Francisco Fed President Mary Daly stated on Wednesday that the central bank will likely need to raise short-term interest rates further to control elevated inflation. However, she also indicated that there is no necessity for such action at the upcoming US central bank meeting on October 27-28.
According to TD Securities, the “strong upside surprise in CPI raises concerns around inflation risks” and has made the Fed’s near-term policy decision more complex. The bank notes that “today’s report makes the Fed’s calculus for October more complicated following recent clear guidance about skipping a hike at the next meeting – we are now tracking a solid 0.36% m/m gain for core PCE.” Even so, TD argues that Fed leadership “appears to have decided to execute a gradual tightening cycle on the back of market pricing, through with the notable broad-based rise in yields partly doing some of the tightening for them.” In that context, TD Securities judges that while “today’s report makes the chance of an October hike higher,” they “still believe the Fed will hold and opt for December as the market is already doing some of the work for them.” The team reiterates that “we are still of the view that October will be a skip based on that pre-CPI guidance. And we continue to look for 75bps of total tightening. However, it is certainly a closer call after today’s CPI data.”
Daly’s speech scores 6.8/10 on the FXS Speechtracker, modestly above the 6.1/10 historical average, indicating a somewhat more hawkish tone compared to the established baseline. The focus on gas-driven headline CPI, persistent core inflation, and the potential for additional rate hikes-mitigated by a preference for cautious timing and intentional measures-highlights a tendency toward further tightening without immediate urgency. Daly’s emphasis on enduring above-target inflation risks, a stable labour market, and the necessity for transparent, accountable communication underscores a measured hawkish approach that markets seem to grasp, as reflected in the subdued post-CPI trading in Dollar assets. The FXS Fed Sentiment Index decreased by 0.84 points to 128.17, suggesting a slight retreat in perceived hawkishness. Despite the decline, the index remains firmly above the neutral 100 mark, indicating that Fed rhetoric continues to reside in hawkish territory, even as the tone shifts slightly toward patience and data dependence.
In the daily chart, EUR/USD maintains a bearish near-term tone as it remains below the 100-day simple moving average and the middle line of the Bollinger Bands. The pair is attempting to stabilise after its recent slide, with the Relative Strength Index at 36.1 recovering from oversold territory but still indicating only modest buying interest as price remains capped by the clustered resistance overhead. On the topside, initial resistance is positioned at the Bollinger SMA middle band at 1.1295, followed by the 100-day SMA at 1.1475 and the Bollinger upper band near 1.1500. These levels collectively establish a significant supply zone that constrains any potential corrective rebounds. On the downside, the Bollinger lower band at 1.1090 presents the next significant support level, and a breach below this threshold would likely subject the pair to additional downward momentum in the ongoing bearish trend.
