The EUR/USD pair appreciates to approximately 1.1220 during the early hours of the Asian session on Monday. France’s debt and political concerns may limit the potential appreciation of the Euro. Market participants prepare for the forthcoming interest rate decisions from the European Central Bank and the Federal Reserve later this week. The EUR/USD pair recovers some lost ground to near 1.1220 during the early Asian trading hours on Monday. However, the potential upside for the pair may be constrained by apprehensions regarding unrest in France and associated political risks. Germany’s IFO reports are scheduled for release later on Monday. Source reported that protests across France regarding the escalating cost of living and increasing inequality escalated into violence for the second consecutive weekend. France’s Interior Ministry reported that approximately 410,000 individuals engaged in protests across various major cities, including Paris. Concerns regarding escalating unrest in France and the deteriorating budgetary situation may impose some downward pressure on the shared currency in the short term. The European Central Bank is poised to maintain its benchmark rate at 2.5% during its October policy meeting on Thursday; however, a rate increase is largely anticipated before the conclusion of the year, as reported by Reuters. Traders will closely examine any indication regarding the rate outlook following ECB President Christine Lagarde’s remarks in late September, which suggested that a moderate policy response to inflation is suitable.
Across the pond, markets widely anticipate that the US Federal Reserve will maintain interest rates at their current levels just days prior to the midterm elections. Markets are currently reflecting a probability of approximately 90.6% that the Federal Reserve will maintain its current interest rates at the forthcoming October meeting on Wednesday, as indicated by the CME FedWatch tool. Additionally, there is a 79.4% likelihood that the US central bank will implement an interest rate increase in December. Strategists highlight that “above target Eurozone inflation and a resilient growth outlook give the ECB scope to deliver additional hikes,” noting that “the swaps curve implies nearly 75bps of tightening to 3.25% in the next twelve months.” They argue this prospective tightening “limits policy divergence with the Fed and the drag on EUR/USD.” At the same time, BBH cautions that “France’s fiscal troubles can drive EUR/USD down to 1.1000,” underscoring that country-specific risks may offset support from the broader Eurozone policy backdrop. Fed Chair Warsh’s speech scores 5.6/10 on the FXS Speechtracker, modestly below the 6.1/10 historical average, indicating a slightly less impactful yet still broadly consistent tone relative to the established baseline. The acknowledgement of being “over-scarred” by the global financial crisis reflects a risk-aware bias, even as Warsh emphasises structural growth, an investment surge propelled by “good policies,” and AI as a near-term demand catalyst with ambiguous implications for employment.
Overall, the focus on price stability, the forthcoming “crystalizing” FOMC meetings, and global spillovers indicate a prudent yet positive outlook that maintains expectations supportive of the Dollar while refraining from a definitive commitment to the policy trajectory for the remainder of 2026. The FXS Fed Sentiment Index remained stable, registering no change at 127.51, a level that continues to indicate a hawkish stance, even as the speech reflected a marginally softer score on the FXS Speechtracker. This stable, elevated reading indicates that markets perceive the current policy stance as persistently hawkish. Warsh’s emphasis on output, employment, inflation, and financial stability risks bolsters expectations that the Fed will maintain its vigilance, a context that is likely to support the Dollar against major counterparts. In the daily chart, EUR/USD maintains a bearish near-term bias as the spot remains constrained below the 100-day simple moving average.
Price remains positioned beneath the middle line of the Bollinger Bands, which underscores the prevailing overhead pressure, while the lower band delineates the closest volatility floor. The Relative Strength Index at 39.7 remains below the 50 threshold, indicating a lack of robust upside momentum and supporting the likelihood of additional downside movements unless the pair manages to regain the mid-band area. On the topside, initial resistance is observed at the Bollinger middle band around 1.1225, followed by the upper band near 1.1315, with the 100-day SMA at 1.1450 serving as a more distant, trend-defining barrier. On the downside, the Bollinger lower band at 1.1140 presents the initial significant support level, and a decisive breach beneath this threshold would pave the way for an extension of the prevailing bearish trend on the daily timeframe.
