Euro weakens below 1.1250 on France’s debt fears
- EUR/USD softens to around 1.1250 in Wednesday's early Asian session.
- France’s fiscal concerns and political uncertainty exert some selling pressure on the Euro.
- Expectations of another US rate hike this month diminished after last week’s US jobs data release.
The EUR/USD pair remains on the defensive near 1.1250 during the early Asian trading hours on Wednesday. The Euro (EUR) weakens against the US Dollar (USD) amid fears of France’s debt crisis. The Minutes of the Federal Open Market Committee (FOMC) will be in the spotlight later on Wednesday.
Worries about France’s ability to rein in its budget deficit and a sharp bond market selloff last week elevated fears of a potential sovereign debt crisis in the Eurozone. This, in turn, could drag the shared currency lower 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 has seen pressure mount as politicians struggle to curb the budget deficit ahead of a divisive election in 2027. The calling of a snap election in Spain also contributes to the Euro’s downside.
“Europe is taking the spotlight at the start of the week, as fiscal and political concerns hit the bloc,” said Kathleen Brooks, the research director at XTB. “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.
On the other hand, easing expectations for US Federal Reserve (Fed) rate hikes following softer US jobs data released last week could weigh on the Greenback and act as a tailwind for the major pair. Interest-rate swaps showed traders pricing in an almost 20% probability that the Fed will lift benchmark borrowing costs at its October gathering, according to the CME FedWatch tool.
Euro positioning highlights systematic short bias across tapes
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 flags AI-driven inflation and signals more short-rate tightening
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 rose by 0.34 points to 137.91, firmly in hawkish territory well above the neutral 100 threshold and consistent with the elevated FXS Speechtracker score. This incremental move higher confirms that recent Fed communication, including Schmid’s remarks, is being interpreted as reinforcing a higher-for-longer stance that should continue to underpin the Dollar against lower-yielding peers.
Technical Analysis: EUR/USD retains a negative outlook amid oversold conditions
In the daily chart, EUR/USD holds a bearish near-term bias as spot remains below the Bollinger Bands 20-period simple moving average and the 100-day simple moving average (SMA), keeping the broader trend capped despite the latest bounce from the lower Bollinger band. The Relative Strength Index (14) at 26.08 sits in oversold territory, hinting that while selling pressure dominates, the downside could be prone to corrective rebounds rather than a fresh impulsive slide.
On the topside, initial resistance is located at the Bollinger Bands middle line at 1.1405, with the 100-day SMA at 1.1500 reinforcing a broader supply zone ahead of the upper Bollinger band near 1.1640. On the downside, the lower Bollinger band at 1.1168 offers immediate support; a clear break beneath this level would expose further weakness, whereas holding above it would leave room for a consolidation phase below the clustered moving-average resistance overhead.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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