EUR/USD softens to near 1.1235 in Friday’s session. Concerns regarding the fiscal trajectory of France are exerting downward pressure on the Euro. Fed’s Logan advocated for ’50 bps or more’ in rate hikes. Attention will be directed toward the US employment data for September, set to be released on Friday. The EUR/USD pair experiences a decline, reaching approximately 1.1235 during the Asian trading hours on Friday. The Euro extends its downside on French fiscal concerns. The US jobs report for September is set to take center stage later on Friday. French 10-year government bond yields have declined following their peak, which marked the highest level since 2002 in the prior session. This action followed the French government’s announcement of its 2027 budget, amidst growing apprehension regarding France’s fiscal outlook. Additionally, a renewed rise in oil prices due to a prolonged US-Iran conflict is contributing to higher yields amid elevated inflation. “Clearly the market is not pricing for a hawkish Fed,” said Prashant Newnaha. “This is a flight-to-safety move spurred on by developments in Europe. In this scenario expect the dollar index and the yen to strengthen at the same time,” Newnaha added.
Hawkish signals from Federal Reserve officials and a prolonged increase in US Treasury yields support the Greenback. Dallas Fed President Lorie Logan stated on Thursday that the central bank must increase short-term borrowing costs by a minimum of 50 basis points to render monetary policy “modestly restrictive” and realign inflation with the Fed’s 2% target. Markets currently reflect a probability of approximately 24.9% for a Federal Reserve rate hike in October, alongside a 79.4% likelihood of an increase in December, as indicated by the CME FedWatch Tool. Traders are poised for the release of the US September employment data on Friday, seeking further insights into the trajectory of US interest rates. The US Nonfarm Payrolls is anticipated to reflect an increase of 90,000 job additions in September, with the Unemployment Rate expected to remain steady at 4.1% during this timeframe. Any signs of weakening in the US labour market could drag the Greenback lower and act as a tailwind for the major pair.
Analysts argue that the “turnaround from expectations of Fed easing to Fed tightening can account for much of the USD’s strong performance during the summer and into last month.” They add that the “lacklustre performance of the EUR has also played a part in driving EUR/USD in the months since the war commenced,” noting that, just as the earlier “attraction of the single currency likely underpinned flows out of the USD during parts of 2025,” the Euro’s “inability to draw strength from the hawkish position of the ECB since the start of the Iran war has likely helped underpin the USD.” According, this disconnect reflects mounting concerns on the European side. They point out that “even though the ECB brought forward its tightening cycle, and despite the resilience of the Eurozone economy this year, the market is concerned about growth risks in view of the Eurozone’s position as an energy importer.” In their view, “European political uncertainties are also likely contributing to the EUR’s lacklustre performance,” compounding the currency’s struggle to benefit from monetary policy support.
Fed’s Logan delivered a notably more hawkish message, with an FXS Speechtracker score of 9.2 compared to a historical average of 8.1, highlighting a stronger tightening bias relative to the established baseline. The emphasis that higher long-term yields may partly reflect rising term premiums, thereby reducing the need for additional tightening, sits in tension with explicit calls for at least 50 bps more in rate hikes and several further moves to revive price stability, reinforcing a clear hawkish tone for the Dollar. Logan’s characterisation of policy as not yet restrictive, coupled with a strengthening economic expansion and a balanced labour market, indicates potential for additional rate increases despite the prevailing uncertainty regarding the terminal rate required to achieve 2% inflation. The FXS Fed Sentiment Index increased by 1.68 points to 136.59, indicating a significant shift into hawkish territory, well exceeding the neutral threshold of 100. This upward shift in the FXS Fed Sentiment Index, aligned with the elevated FXS Speechtracker score, indicates increasing market expectations for further Fed tightening, creating a favourable environment for the Dollar relative to major peers.
In the daily chart, EUR/USD continues its decline significantly beneath the middle band of the Bollinger Bands (20, 2) and the 100-day simple moving average. This scenario indicates a robust bearish near-term structure, with the pair facing substantial overhead resistance. The price is currently approaching the Bollinger lower band, with the Relative Strength Index (14) at 17.21 indicating a significant position in oversold territory. This suggests that downside momentum continues to be robust, even as the potential for a corrective bounce rises. On the topside, initial resistance emerges at the Bollinger middle band near 1.1460, followed by the 100-day SMA around 1.1515, with a more distant barrier at the Bollinger upper band near 1.1705, where stronger selling interest would be expected if recovery attempts gain traction. On the downside, immediate support is aligned with the Bollinger lower band at 1.1215; a sustained break beneath this floor would pave the way for a continuation of the bearish trend, while holding above it could enable EUR/USD to consolidate before attempting to retest the nearby resistance band.
