EUR/USD has decreased to approximately 1.1225 during the early Asian session on Wednesday. Traders exhibited caution regarding the Euro amid widespread protests and fiscal uncertainties in France. The Fed is expected to hold rates steady this month before potentially resuming tightening later in the year. The EUR/USD pair experiences a decline, approaching 1.1225 in the early hours of trading in Asia on Wednesday. The Euro softens against the US Dollar as French protests and fiscal strains keep traders cautious. Policymakers from the European Central Bank, including President Christine Lagarde, Philip Lane, Joachim Nagel, and Piero Cipollone, are scheduled to address the public later today. Source reported that a French official will deploy military forces to assist in maintaining order amid a new wave of protests anticipated this weekend. French Prime Minister Sébastien Lecornu indicated that new curfews would be implemented “where the situation requires it.” And “The worries in France are not going away anytime soon,” said Tommy von Brömsen. “The bearish view on France will stay for a while longer, and there’s much more euro weakness to be priced in,” Tommy added.
Across the pond, markets assess the Federal Reserve’s next action following its rate hike in September, marking the first increase since 2023. Fed Chairman Kevin Warsh indicated that he would not “prejudge” meetings, while the majority of Fed policymakers have anticipated at least one additional increase this year. Traders are currently assigning approximately a 16.1% likelihood to the prospect of an additional quarter-point increase during the Federal Reserve’s meeting on October 27-28, as indicated by the CME FedWatch tool. Market participants are factoring in a probability exceeding 90% for a rate increase during the December policy meeting. Strategists note that the Euro is underperforming on the day, with the EUR “lagging its major currency peers” as ongoing strains in Eurozone government bond markets weigh on sentiment. They highlight that the “10Y OAT/Bund spread remains elevate, near 150bps, reflecting social/fiscal tensions in France,” underscoring the persistent risk premium embedded in French debt. On the data front, Scotiabank points to the Germany October ZEW Survey, which “reflected a solid improvement in the (still soft) Current Situation reading (-35.9 versus -44.5 expected and -47.1 in September) but some softening in the Expectations component (to 28.1, from 33).” The bank cautions that this “survey of financial professionals tends to be heavily weighted by market, rather than economic, developments” but concludes that it “generally indicates the economy remains in ‘slow recovery’ mode,” limiting the scope for a more decisive Euro rebound.
Fed Chair Warsh conveyed a moderately constructive tone, as indicated by the FXS Speechtracker score of 5.6/10. This score is slightly below the historical average of 6.1/10, suggesting that the speech provided only modest incremental information for markets. The acknowledgement of being “over-scarred” by the Global Financial Crisis reveals a continued inclination toward caution regarding financial stability. This perspective persists despite Warsh’s emphasis on structural growth, an increase in investments, and the positive influence of AI on data and policy confidence, all while he refrains from making commitments about decisions in October and December. Overall, the speech strikes a balance between optimism regarding the real economy and technology, while simultaneously exhibiting a clear reluctance to prejudge the policy trajectory. This leaves Dollar traders attentive to the forthcoming FOMC meetings as the pivotal moment. The FXS Fed Sentiment Index remained stable, registering no change at a hawkish level of 127.51. This indicates that the speech did not significantly alter the perceived policy stance, even with the marginally lower FXS Speechtracker score. With the index firmly above 100, the Fed remains in a hawkish stance, and the interplay of structural growth, an investment surge, and AI-driven confidence in data sustains support for Dollar sentiment, even in the absence of an additional hawkish impetus.
In the daily chart, EUR/USD maintains a bearish near-term outlook as the spot price remains below the 100-day simple moving average and the 20-day Bollinger middle band. Price remains beneath the upper Bollinger band, which supports a downside-oriented consolidation within the envelope. Meanwhile, the Relative Strength Index (14) is approximately at 40, positioned below the neutral 50 line, indicating a lack of significant bullish momentum. On the topside, initial resistance emerges at the 20-day Bollinger SMA around 1.1250, followed by the upper band near 1.1392 and the more significant 100-day SMA at 1.1460, which caps the broader recovery attempts. On the downside, the lower Bollinger band at approximately 1.1115 establishes the next significant support level, and a sustained breach beneath this threshold would likely pave the way for a more pronounced decline toward prior cycle lows.
