EUR/USD softens to approximately 1.1250 in the early Asian session on Wednesday. France’s fiscal concerns and political uncertainty are applying some downward pressure on the Euro. Expectations for an additional US rate hike this month have waned following the release of last week’s US jobs data. The EUR/USD pair continues to exhibit a defensive posture around 1.1250 in the early hours of Asian trading on Wednesday. The Euro weakens against the US Dollar amid fears of France’s debt crisis. The Minutes of the Federal Open Market Committee will attract attention later on Wednesday. France’s Finance Minister indicated that the government is prepared to utilise special constitutional powers to bypass Parliament in order to implement significant spending cuts should negotiations regarding the upcoming budget falter.
Concerns regarding France’s capacity to manage 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 downward pressure on the shared currency in the near term. 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. French debt is experiencing increasing pressure as politicians grapple with the challenge of reducing the budget deficit in anticipation of a contentious election in 2027. The announcement of a snap election in Spain further exacerbates the downward pressure on the Euro. “Europe is taking the spotlight at the start of the week, as fiscal and political concerns hit the bloc,” said Kathleen Brooks. “France is the epicentre of the concerns; however, Spain is also set to get ready for an early election, which is adding to investor worries,” Kathleen added.
Conversely, the easing expectations for US Federal Reserve rate hikes, prompted by the softer US jobs data released last week, may exert downward pressure on the Greenback and serve as a supportive factor for the major pair. Interest-rate swaps indicated that traders are assigning nearly a 20% likelihood to the Federal Reserve increasing benchmark borrowing costs during its October meeting, as per the CME FedWatch tool. According to TD Securities, current “CTA Positioning, EUR Futures” indicates that systematic traders remain materially short the Euro across a range of market scenarios. Their “CTA positioning est., EUR, downtape” contrasts with “CTA positioning est., EUR, flat tape” and “CTA positioning est., EUR, uptape,” underscoring how exposure is calibrated to different price paths, while the “CTA positioning est., EUR, big uptape” scenario captures the potential for more pronounced position adjustments if Euro strength accelerates. TD Securities’ “CTA Positioning Estimate (rhs) EUR Futures” provides a consolidated view of these dynamics, mapping how CTA exposure in EUR futures may evolve as the underlying tape shifts from downside to upside conditions.
Fed’s Schmid delivers a notably hawkish tone, with an 8/10 FXS Speechtracker score that is modestly above the 7.5/10 historical average, underscoring elevated concern about persistent price pressures. The emphasis that inflation is “frustrating” and must be fixed, alongside the assertion that AI is now one of the largest drivers of inflation and that the Fed still has work to do on the short rate despite higher long-term yields, reinforces a bias toward keeping policy restrictive for longer. The warning that Fed credibility is at stake in beating inflation further hardens the hawkish signal and suggests limited appetite for near-term easing in Dollar-sensitive markets. The FXS Fed Sentiment Index increased by 0.34 points to 137.91, remaining in hawkish territory significantly above the neutral threshold of 100, which aligns with the high FXS Speechtracker score. This incremental move higher confirms that recent Fed communication, including Schmid’s remarks, is interpreted as reinforcing a higher-for-longer stance that should continue to underpin the Dollar against lower-yielding peers.
In the daily chart, EUR/USD exhibits a bearish near-term bias as the spot remains below the 20-period simple moving average of the Bollinger Bands and the 100-day simple moving average, thereby constraining the broader trend despite the recent rebound from the lower Bollinger band. The Relative Strength Index (14) at 26.08 indicates an oversold condition, suggesting that although selling pressure prevails, the potential for corrective rebounds may be more likely than a new impulsive decline. On the topside, initial resistance is positioned at the Bollinger Bands middle line at 1.1405, with the 100-day SMA at 1.1500 providing additional reinforcement to a broader supply zone preceding the upper Bollinger band near 1.1640. On the downside, the lower Bollinger band at 1.1168 provides immediate support; a decisive breach below this level would reveal additional weakness, while maintaining position above it would allow for a consolidation phase beneath the clustered moving-average resistance above.
