FX.co ★ EUR/USD

The euro came under pressure against the dollar around the 1.1210 level in early European trading on Friday, weighed down by persistent market concerns about France's growing debt burden. French bond prices fell sharply, further pressuring the euro against the dollar. The yield on France's benchmark 10-year bond briefly reached 5.1415%, its highest level since July 2002, before falling back 6.5 basis points to 5.06%. Meanwhile, the spread between French and German 10-year bond yields widened sharply to 177.7 basis points. This widening represents the largest yield premium since the height of the eurozone sovereign debt crisis in November 2011, highlighting investors' deep concerns about French financial stability. This followed the French government's pledge to deploy military and police forces to deal with planned nationwide protests. Elias Haddad, chief market strategist at Brown Brothers Harriman, points out that the severe political gridlock, coupled with public discontent over the rising cost of living, makes fiscal consolidation before the upcoming French presidential election virtually impossible. Regarding monetary policy, the market widely expects the European Central Bank (ECB) to keep its deposit facility rate at 2.50% at its meeting next week. Foreign exchange analysts at Rabobank believe that while the ECB's tightening cycle is not yet complete, policymakers may pause rate hikes in October and then eventually raise them by 25 basis points in December. Rabobank notes that while the risks of higher inflation persist, they have not yet accelerated to the point of requiring immediate action, and that tighter fiscal conditions have already constrained monetary policy. Furthermore, Rabobank emphasizes the lack of evidence suggesting that inflation is fully spread or deeply entrenched, and therefore market expectations of three more interest rate hikes are overstated, especially considering that energy sector inflation is expected to decline due to a favorable base effect in early 2027. Meanwhile, the Federal Reserve's data continues to reflect its data-driven hawkish monetary stance. Fed Chair Kevin Warsh's latest speech scored 5.6/10 on the FXS Speechtracker, slightly below its historical average of 6.1/10, indicating a more dovish tone, though his core message remains consistent with the central bank's objectives. Warsh reiterated the warnings he has drawn from past financial crises, emphasizing strong structural economic expansion and a significant increase in investment driven by supportive domestic policies. Warsh emphasized that the upcoming Federal Open Market Committee (FOMC) meetings in October and December will allow policymakers to assess emerging production, employment, and inflation indicators without predetermining a fixed interest rate path. He noted that while large-scale investment in artificial intelligence could boost productivity, it also introduces uncertainties to the labor market. Meanwhile, the FXS Federal Reserve Investor Confidence Index remains high at 127.51, indicating a continued hawkish bias. This persistent indicator suggests that financial markets still perceive the Fed's response as leaning toward a more hawkish monetary policy and acknowledge that policymakers remain focused on stabilizing inflation expectations despite new challenges to financial stability.

From a technical analysis perspective on the daily chart, the short-term outlook for the EUR/USD pair is clearly bearish. The current trading price is below the key 100-day simple moving average at 1.1451 and below the 20-period Bollinger Band. Price action remains constrained by the lower Bollinger Band, while the 14-day Relative Strength Index (RSI) hovers around 38, well below the neutral threshold of 50, suggesting continued downward pressure rather than a short-term structural bounce. On the upside, initial dynamic resistance lies near the Bollinger Band's middle line at 1.1235, followed by stronger resistance near the upper Bollinger Band at 1.1345. A sustained break above these levels could trigger further gains toward the 100-day moving average at 1.1451, which represents a key supply zone and limits upside potential. On the downside, initial technical support lies at the October 19 low of 1.1185, followed by the lower Bollinger Band at 1.1125. Should prices continue to decline below this support zone, they could reach deeper structural targets, potentially falling further to the May 12, 2025 low of 1.0951.