The EUR/USD pair has experienced a rebound, currently trading at approximately 1.1215 during the early hours of the Asian session on Monday. US consumer sentiment has declined further in October. French bond issues could limit the potential appreciation of the Euro. The EUR/USD pair recovers some lost ground to near 1.1215 during the early Asian trading hours on Monday. The US Dollar softens against the Euro following weaker-than-expected US Consumer Sentiment data. European Central Bank Vise President Boris Vujčić is scheduled to deliver remarks later today. US consumer sentiment deteriorated further in October as soaring oil prices due to the Middle East conflict soured households’ views of the economy, the University of Michigan’s Surveys of Consumers showed on Friday. The UoM Consumer Sentiment Index experienced a decline, falling to 46.3 in October from the previous month’s figure of 48.1 in September. This reading fell short of the market consensus of 47.6.
Additionally, UoM one-year inflation expectations increased to 4.7% in October, up from 4.6% in the prior reading. Consumers’ expectations for inflation over the next five years increased to 3.5% from 3.4% in September. However, this data has solidified anticipations for a 25 basis points Federal Reserve rate increase at their forthcoming meeting. Conversely, the turmoil surrounding French debt may place downward pressure on the shared currency. French government bond yields have surged to multiyear highs in recent days, as the country’s mounting debt crisis fuels wider concerns about Europe’s strained public finances. Traders will pay careful attention to Italy in light of the contentious new government spending proposals. The Italian government is poised to unveil a budget that includes recently sanctioned allocations for defence and energy. These measures are anticipated to elevate the nation’s budget deficit over the forthcoming two years and drive its debt-to-GDP ratio toward the highest levels in Europe, as reported.
Analysts argue that, despite recent Euro weakness, they “continue to see evidence of economic resilience in Europe that could help stabilise the euro at these lower levels.” They point to Germany, where “the Economy Ministry… revised up its GDP growth projection from 0.5% and 0.9% for this year and next to 1.3% and 1.1% respectively.” Growth had previously been downgraded in response to the war, but MUFG notes that “the new estimate for this year is above the 1.0% estimate at the start of the year underlining the level of resilience.” At the same time, the bank highlights mounting trade frictions with China as a potential headwind for the single currency. MUFG flags “speculation that Europe is soon to respond with agreeing to a more flexible trade policy mechanism that would allow for easier implementation to counter against huge imports to Europe from China,” adding that “an import cap could be agreed as well as additional tariffs that could see trade tensions rise and prompt retaliation from China.” The bank warns that “these talks could be the final opportunity to avoid increased tensions,” and cautions that “an escalation into grater trade conflict could be another EUR negative factor.”
On the currency side, MUFG observes that “this mounting pressure looks to be encouraging China too allow renewed gains.” They note that “recent PBoC fixing in USD/CNY indicate a desire to keep CNY on a strengthening path despite the broader gains for the dollar,” with “EUR/CNY… 10% lower from the January high” and “near-term scope for further declines.” The bank adds that “the continued CNY strength is helping isolate Asian currencies from the broader dollar gain,” pointing out that “while the DXY has advanced 3.3% from the September low, the dollar against a basket of Asia FX is just 0.7% higher.” Moulin’s 6.2/10 score aligns with the historical average on FXS Speechtracker, indicating no significant change in tone from previous communications. By emphasising that inflation is “clearly 100% energy” and that second-round effects are not apparent, the speech adopts a slightly dovish stance regarding the underlying inflation dynamic, despite Moulin recognising an inflationary shock. Simultaneously, the alert regarding the transmission of geopolitical shock into a financial shock, coupled with the assertion that Euro area growth remains “quite resilient,” allows the ECB to uphold a prudent policy approach.
For the Euro, this combination of energy-driven inflation and resilience in activity indicates that immediate hawkish escalation is likely to be limited; however, it also constrains the potential for aggressive easing expectations in the near term. In the daily chart, EUR/USD continues its bearish trajectory, with the spot remaining below the 100-day simple moving average and also beneath the 20-day middle line of the Bollinger Bands. This configuration maintains a structural cap on rallies for the pair, while the Relative Strength Index (14) hovering around 27 indicates oversold conditions that could mitigate, but not yet reverse, the prevailing downside pressure. On the downside, immediate support is positioned at the lower Bollinger Band around 1.1125, a level where sellers may begin to realise profits if attained. On the topside, initial resistance emerges at the Bollinger 20-day middle band around 1.1345, followed by the 100-day SMA at 1.1490 and then the upper Bollinger band near 1.1560, levels that would need to be reclaimed to ease the current bearish bias.
