Near yearly low: Euro looks vulnerable as Fed-ECB policy takes centre stage

• 1.1113 marks the Euro’s yearly low against the US Dollar. The currency remains vulnerable near that level ahead of the Fed’s policy decision.
• French fiscal concerns and climbing oil prices maintain downward pressure on the Euro.
• Interest rates are expected to remain unchanged at both the Fed and the ECB.

1.1113 is the Euro’s (EUR) yearly low against the US Dollar (USD). The pair trades near that level in Wednesday’s European session, weighed down by mounting unease in French bond markets and higher oil prices.

2022 confidence lows and wider French spreads weigh on Euro

Domestic political tensions are becoming more apparent in French markets, according to Scotiabank strategists, who note that “French bonds … underperforming, nudging the spread over 10Y bunds back up to 161bps.” Highlighting the sharp deterioration in sentiment, they add that “French Consumer Confidence plunged to 80 in October, equaling the low seen in 2022, reflecting recent pollical tensions and social unrest.”

Fears of further risks to energy supplies have meanwhile driven oil prices higher at a faster pace, following a drone attack by Iran-backed Houthis on Saudi Arabia’s largest oil facility.

A military spokesperson for the Iran-aligned Houthis said on Tuesday that the group had struck Saudi Arabia’s largest oil refinery with a missile. The claimed attack marked an escalation in strikes against the world’s second-largest crude producer. Reuters reports that Saudi authorities did not immediately confirm the strike on the facility, which has a capacity of 550,000 barrels per day.

Thursday’s European Central Bank monetary policy announcement and Friday’s preliminary German Harmonized Index of Consumer Prices (HICP) figures for October will be key upcoming catalysts for the Euro. Expectations point to the ECB leaving interest rates unchanged.

For the US Dollar, attention is on the Federal Reserve’s (Fed) monetary policy announcement, due at 18:00 GMT.

December and March hikes: Danske Bank’s Fed outlook

With the US policy announcement approaching, Danske Bank analysts say “the main event of the week is this evening's FOMC rate decision and the following press conference,” adding that they “expect the Fed to keep policy rates unchanged, in line with consensus, while markets price in a 10% probability of a hike.”

Explaining its forecast for dissent, the bank says “most central FOMC members have signalled that they can wait until December before hiking again, although a few see more urgency,” leading its analysts to “expect 2-3 dissenting votes in favour of a hike.”

Danske Bank maintains that it “still see[s] a need for further tightening”, while noting that “all eyes are on Fed, which are expected to leave rates unchanged.” The bank continues to forecast “two more hikes, in December and March.” Its base case is for Chair Powell “to reiterate his firm commitment to bringing inflation back to target”.

1.1126: EUR/USD Technical Outlook

At 1.1126 on the daily chart, EUR/USD retains a bearish bias below its 20-day exponential moving average (EMA) of 1.1228. This dynamic resistance continues to cap the pair. A Relative Strength Index (RSI) reading near 30 also suggests that downward momentum remains dominant. Approaching oversold conditions may temper near-term selling, rather than signal a reversal of the trend.

The 20-day EMA near 1.1228 provides the first resistance on the upside. A daily close above it would be required to reduce the prevailing bearish pressure and indicate a more lasting corrective rebound. Before that level is recovered, any rallies are likely to be treated as corrections within the wider downtrend. With no nearby structural support on the chart, renewed selling momentum would leave the pair exposed to fresh lows.

(The technical analysis of this story was written with the help of an AI tool. Know more.)