EUR/USD is experiencing upward momentum, reaching approximately 1.1215 during the early Asian session on Friday. The Euro continues to face downward pressure due to concerns surrounding France’s fiscal situation. The probability of an October Federal Reserve rate hike decreased to 17.7%, down from approximately 38% a week prior. The EUR/USD pair maintains a favourable position close to 1.1215 in the early hours of Asian trading on Friday. Nonetheless, the potential upside for the major pair may be constrained by concerns surrounding France’s debt crisis. The Michigan Consumer Sentiment Index data for October is scheduled for release later on Friday. The spread between French and German 10-year bond yields experienced its most significant weekly increase in decades last week, as traders sold off French bonds in preference for the more secure German bunds. French Prime Minister Sébastien Lecornu’s minority government announced plans last month for a €54bn savings drive to stave off a catastrophic downgrade or sovereign default.
Concerns regarding France’s capacity to control its budget deficit, coupled with a significant selloff in the bond market last week, have heightened anxieties about the possibility of a sovereign debt crisis within the Eurozone. This, in turn, could exert some selling pressure on the shared currency in the near term. “The euro remains under pressure, limiting one of the dollar’s main alternatives,” said Uto Shinohara. The FOMC Minutes revealed a division among policymakers in September regarding the justification for raising interest rates. “Some participants” viewed a hike as essential to mitigate the effects of energy and other price shocks, while a more hawkish faction considered it necessary to protect against the risk of emerging demand-driven inflation. The likelihood of a rate increase of no less than 25 basis points at the Federal Reserve’s upcoming meeting is currently assessed at 17.7%, a decline from approximately 38% just a week prior, as indicated by the CME FedWatch tool. Markets are currently reflecting an 83% probability of an interest rate increase at the Federal Reserve’s meeting in December.
Strategists observe that the recent policy action by the ECB and the upcoming Account are not expected to significantly alter the overarching EUR/USD narrative. They note that “at that meeting, the ECB unanimously voted to raise the policy rate 25bps to 2.50%,” and anticipate that the minutes will “reinforce the case for further hikes, but the message will look somewhat dated given the recent surge in bond yields.” BBH argues that “above target Eurozone inflation and a firmer growth outlook give the ECB scope to deliver additional hikes,” with the “swaps curve [implying] nearly 75bps of tightening to 3.25% in the next twelve months.” In their view, “that limits policy divergence with the Fed and the drag on EUR/USD.” However, they caution that “stronger US growth traction relative to the Eurozone and France’s worsening budget crisis keep EUR/USD risk skewed to the downside.” Fed’s Waller delivered a distinctly hawkish tone, with an FXS Speechtracker score of 8/10, above the established baseline of 7.2/10, underscoring a stronger-than-usual tightening bias. The emphasis that “more hikes [are] needed but flexible about the pace” and that further moves need not be at consecutive meetings signals a higher terminal rate but a less mechanical path.
Persistent inflation drivers such as AI buildout and energy shocks, alongside a strengthening economy and a “solid and stable” labour market, reinforce the case for keeping policy restrictive to safeguard inflation expectations. Overall, the speech indicates ongoing backing for the Dollar, even as the pace of future adjustments may become increasingly reliant on data. The FXS Fed Sentiment Index increased by 0.42 points to 138.34, remaining solidly in hawkish territory, significantly surpassing the neutral threshold of 100, which corresponds with the high reading from the FXS Speechtracker. This combination indicates that markets ought to incorporate a prolonged higher interest rate environment from the Fed, where signalling takes precedence over explicit forward guidance while still maintaining expectations for additional tightening.
In the daily chart, EUR/USD exhibits a bearish near-term bias as the spot price remains below the 20-period Bollinger simple moving average and the 100-day SMA. Price remains only slightly elevated above the lower Bollinger band, with the Relative Strength Index (14) at 26.1 indicating it is situated in oversold territory. This suggests that while selling pressure is significant, a reversal has yet to occur. On the topside, initial resistance appears at the Bollinger middle band SMA around 1.1360, succeeded by the 100-day SMA at 1.1495 and the upper Bollinger band close to 1.1585. On the downside, the lower Bollinger band at 1.1135 constitutes the initial significant support zone, and a definitive breach below this level would pave the way for a continuation of the existing downtrend.
