EUR/USD softens to near 1.1230 in the early European session on Monday. Fiscal and political risks in Europe remain a central concern. The pair maintains a bearish sentiment beneath the crucial 100-day SMA. The initial downside target to monitor is 1.1151; the immediate resistance level is identified at 1.1270. The EUR/USD pair is positioned in negative territory, hovering around 1.1230 during the early European trading hours on Monday. Fiscal risks in France and political instability in Europe exert some selling pressure on the Euro against the US Dollar. Frank Elderson, a member of the Executive Board of the European Central Bank, is scheduled to deliver remarks later today. France experienced the most extensive demonstrations in a wave of protests that swept across Europe, impacting Belgium, Italy, and Portugal as well. Young individuals have been mobilising in public demonstrations to express their dissatisfaction regarding the condition of educational institutions and the broader challenges posed by the cost of living crisis, according to the Guardian. The escalating widespread protests may exert downward pressure on the shared currency in the near term.
Conversely, diminishing expectations for a Federal Reserve rate hike could limit the downside potential for the pair. Fed Chair Kevin Warsh expressed a positive outlook regarding the robustness of the US economy, yet refrained from providing any indications concerning the future direction of US interest rates. Markets currently reflect an 83.9% probability that the Fed will maintain its current interest rates in the upcoming meeting, a notable increase from the 49% likelihood observed a month prior, as indicated by the CME FedWatch Tool. Strategists observe that the Euro’s sensitivity to bond markets remains uneven, noting that “the EUR’s relationship with Eurozone sovereign spreads tends to be episodic and other factors appear to be a more significant influence on FX currently.” They highlight that Fed Chair Warsh’s “dovish by omission comments on the policy outlook earlier have allowed for a minor narrowing in front-end EZ/US spreads and lifted the EUR.” On the policy front, Scotiabank judges that “at the margin, OAT tensions help tilt ECB risks away from hiking at the end of the month but are unlikely to influence the December decision (a 25bps hike is all but fully priced in).” The bank adds that “we estimate EURUSD fair value at 1.1285.” From a technical perspective, Scotiabank describes the outlook as “bullish,” pointing to “a solid rebound from long-term retracement support in the low 1.11s (50% retracement of the EUR’s 2025/26 rally from the 1.01 area) earlier this week and gains through noted resistance at 1.1240/50” that “are setting the EUR up for a potentially bullish weekly reversal.”
The analysts stress that “this will be contingent the EUR sustaining late week gains through the close of business today,” with “intraday support is 1.1245/50” seen as a key near-term reference. Fed Chair Warsh conveyed a message that was moderately constructive yet cautious, reflected in a 5.6/10 FXS Speechtracker score, which falls short of the 6.1/10 historical average, indicating a somewhat diminished conviction compared to the established baseline. The acknowledgement of being “over-scarred from the global financial crisis” underscores a persistent risk-averse bias. Warsh highlights a structural growth and investment surge driven by “good policies.” Meanwhile, the refusal to pre-judge the October and December meetings keeps the Dollar sensitive to incoming data. Warsh emphasises that AI will impact the demand side prior to the supply side, coupled with uncertain near-term employment effects. This suggests potential upside growth and inflation risks that could ultimately warrant a firmer policy stance, contingent upon favourable data. The FXS Fed Sentiment Index remained stable following the speech, recording a 0.00-point change and maintaining its position at 127.51, which is solidly within hawkish territory, even though the tone score on the FXS Speechtracker was slightly below baseline.
The steady, elevated index level indicates that markets perceive Warsh’s caution and emphasis on financial stability and AI-related tail risks as aligned with a Federal Reserve that continues to favour a restrictive policy stance rather than signalling an imminent dovish pivot. In the daily chart, EUR/USD maintains a bearish near-term outlook as the spot remains below the 100-day Simple Moving Average and the 20-day middle line of the Bollinger Bands. The pair is moving along the lower portion of the Bollinger envelope, with the Relative Strength Index (14) hovering around 40, indicating weak downside momentum rather than an oversold condition, which continues to favour sellers as long as the price is constrained by these upper averages. On the downside, the initial support level is identified at the October 15 low of 1.1151, followed by the lower limit of the Bollinger band near 1.1105. A breach beneath this threshold would pave the path toward the low of 1.1050 recorded on May 21, 2025. On the topside, the initial resistance level is identified at the Bollinger 20-day middle band, approximately 1.1270. Further barriers are positioned at the July 28 low of 1.1353, approaching the upper boundary of the Bollinger band around 1.1440, and subsequently the 100-day SMA at 1.1465, which collectively delineate a more extensive supply zone.
