FX.co ★ EUR/USD

I've reviewed the material on the Fed and the ECB for the coming week, and the main conclusion is this: both central banks are likely to take a pause, but the rhetoric will differ. The Fed will retain a hawkish tilt, hinting at December, while the ECB will probably be more cautious because of the French crisis. It is this combination that will determine where the pair goes after the meetings, not the rate decisions themselves, which the market has already priced in. The picture for the Fed is as follows. The meeting is October 27–28, and the market prices the probability of the rate staying in the 3.75–4.00% range at 89–93%. This is practically settled, and there is little suspense in the decision itself. However, a pause does not mean easing. About 81% of traders are pricing in a hike in December, and economists surveyed by Reuters are almost unanimous in expecting a pause now, but all expect a hike in December. The key suspense is Worsh's press conference. He fundamentally avoids forward guidance, so the market will be fishing for hints. If he confirms a December hike, the dollar will strengthen. If he stays silent or gives a dovish signal, pressure on the dollar will ease. FXStreet expects the Fed to raise rates in December and March, and EURUSD to fall to 1.10 over a 6–12 month horizon, which is a bearish medium-term forecast for the pair. The situation with the ECB is no less interesting. The meeting is October 29, and the consensus is almost unanimous: the deposit rate will remain at 2.50%, with the probability of a pause over 90%. However, a December increase to 2.75% is being priced by the market. Danske Bank expects a final 25 bps hike in December, after which the rate will remain at that level into 2027. Intesa Sanpaolo also sees a pause in October and a possible hike in December. But there is an important nuance. Lagarde will likely keep full flexibility and not give firm guidance. Moreover, comments from council members after the September meeting have become less hawkish than Lagarde's press conference. They increasingly factor in demand destruction and the absence of second-round inflation effects, which means the ECB is not ready to act as decisively as the Fed. Separately on France, because this is the main risk for the euro. Moody's decision to keep the rating at Aa3 with a negative outlook gave the euro some breathing room, but it did not solve the problem. The spread between French OATs and German Bunds remains at historic highs, around 150–160 basis points. Until this gap narrows, the euro will be vulnerable. Moreover, the ECB has made it clear that France cannot use TPI to stabilize its bonds until it overcomes the political deadlock and presents a convincing plan for budget consolidation. This limits the ECB's ability to defend the euro if the situation deteriorates, and the market is taking that into account. What this means for the pair. The pair is stuck in a range, and both meetings are unlikely by themselves to trigger a strong move, because the market has already priced in pauses from both central banks. Bull scenario: if Worsh gives a dovish signal and does not confirm December, while Lagarde, by contrast, hints at a December hike, the euro will gain support. A break of 1.12500 will open the way to 1.13503. Bear scenario: if Worsh confirms December and Lagarde stays silent, the dollar will strengthen. Holding the price below 1.12201 will refocus attention on 1.11540–1.11454. The main risk for the euro is not the Fed but France. As long as spreads remain wide, any rally will be limited. Good luck.