Euro gathers strength above 1.1150 despite France’s fiscal concerns
- EUR/USD strengthens to around 1.1165 in Tuesday’s Asian session.
- France's mounting debt crisis fuels wider concerns about Europe’s strained public finances, weighing on the Euro.
- The US CPI, PPI and Retail Sales inflation reports will be the highlights later on Wednesday.
The EUR/USD pair gains ground to near 1.1165 during the early Asian trading hours on Tuesday. Nonetheless, the potential upside for the major pair might be limited amid growing fiscal and political instability in France. All eyes will be on the key US inflation reports later this week.
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. Citi analysts believe growing fiscal risks in France could prompt the European Central Bank (ECB) to pause interest rate hikes after December, or earlier if financial stress spreads across the Eurozone.
Elsewhere, Spanish Prime Minister Pedro Sánchez called a snap general election for November 29 after parliament rejected two of his minority government's housing decrees.
On the US front. Cleveland Federal Reserve (Fed) President Beth Hammack said on Monday that the Federal Reserve should move "relatively quickly" to a restrictive policy to control inflation she sees as more broad-based.
The US Consumer Price Index (CPI) inflation report is due on Wednesday, followed by the Producer Price Index (PPI) and Retail Sales data on Thursday. These reports could provide further direction on the Federal Reserve’s policy path.
“I don’t think [the reports] are going to show any signs of easing in inflation, and they would probably lean bearish for the metals market,” said Jim Wyckoff, a market analyst at American Gold Exchange.
Euro steadies as OAT/Bund spread stagnates and EUR/USD shorts build
Analysts at Societe Generale observe that the “stagnation of 10y OAT/Bund spread around 137bp removed a source of weakness for EUR/USD and EUR/G10,” even as they caution that it remains “unclear what can drive the spread back to the mean around 110bp.” At the same time, positioning has turned notably bearish, with the bank highlighting that “EUR/USD short positions are the highest since Dec-24,” underscoring the potential for a sharp repositioning should market drivers shift.
Hammack leans hawkish as Fed rhetoric flags risk of entrenched inflation
Fed’s Hammack delivers a notably more hawkish tone, with the 8.4/10 FXS Speechtracker score standing above the 7.5/10 historical average, underscoring a stronger bias toward tighter policy relative to the established baseline. The emphasis that “interest rates need to be higher,” alongside concerns about an inflationary mindset, broad price pressures, and neutral financial conditions, points to a preference for maintaining or increasing restrictiveness, albeit via smaller, more frequent tweaks to the policy rate. Hammack’s focus on demand-side pressures from AI, sustained growth, and a steady job market reinforces the case for tight monetary policy until inflation convincingly returns to the 2% target.
The FXS Fed Sentiment Index rose by 0.59 points to 138.92, firmly in hawkish territory and consistent with the elevated FXS Speechtracker score. This move signals that Fed communication is skewing more toward tightening risks, supporting expectations that the Dollar could remain underpinned as markets price in a higher-for-longer rate stance.
Technical Analysis: EUR/USD keeps a bearish vibe under the 100-day SMA
In the daily chart, EUR/USD extends a bearish near-term tone as spot holds below the 100-day simple moving average (SMA) and even beneath the Bollinger middle band. Price is only modestly above the lower Bollinger band, while the Relative Strength Index (14) sits in oversold territory, hinting that while downside pressure dominates, the sell-off is becoming stretched.
On the topside, initial resistance is located at the Bollinger middle band near 1.1320, followed by the 100-day SMA at 1.1485 and the upper Bollinger band around 1.1540, where any recovery would likely stall unless buyers regain broader control. On the downside, the lower Bollinger band at 1.1105 offers the next notable support, and a decisive break beneath this floor would open the door to a continuation of the downtrend toward fresh lows.
(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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