EUR/USD Price Forecast: Bearish outlook persists below 100-day SMA as pair eases towards 1.1200

• Near 1.1210, EUR/USD loses ground in early European trading on Friday.
• Thursday saw the premium demanded by investors to hold French government debt rather than German Bunds reach a 15-year high.
• Below the key 100-day SMA, the pair’s outlook remains bearish.
• Initial resistance stands at 1.1235, while 1.1185 is the first support level in focus.

France’s substantial debt burden and doubts about its ability to address it have weighed on French government bonds, putting some selling pressure on the Euro (EUR) against the US Dollar (USD). Against this backdrop, EUR/USD is trading lower at around 1.1210 in Friday’s early European session.

A 6.5-basis-point rise took France’s benchmark 10-year government bond yield to 5.06%, following a brief move to 5.1415%, the highest since July 2002. At 177.7 bps, the spread over German Bunds reached its widest since November 2011, during the eurozone debt crisis. The widening gap underscores mounting investor unease about France’s fiscal prospects.

Ahead of further protests planned for Saturday, the French government pledged a substantially larger security operation. Troops are expected to join additional police deployments.

Elias Haddad, senior markets strategist at Brown Brothers Harriman & Co., said: “Political gridlock and public anger over the high cost of living are making it virtually impossible to repair public finances ahead of next year’s French presidential election,”

According to Reuters, the European Central Bank (ECB) is expected to leave its benchmark rate at 2.5% next week, although markets have almost fully priced in an increase before the end of the year.

ECB to pause in October before final December hike, Rabobank expects

With the central bank expected to “hold policy unchanged, leaving the deposit rate at 2.50%.” Rabobank analysts argue that “the ECB’s tightening cycle may not be over, but the next rate hike will probably not materialise this month,” Their assessment that “inflation risks are still to the upside, but they have not meaningfully increased,” sits alongside the observation that “tighter financial conditions amplify the ECB’s rate hikes somewhat,” limiting the need for further immediate action.

Looking at the response to the energy shock, Rabobank’s assessment is that “so far, the ECB has managed the inflation and growth risks of the energy shock well. They tightened proactively, but gradually.” The analysts add that “the persistence of inflation risks implies that the ECB maintains this trajectory, and we believe that the next (and final) step will follow in December.”

The bank currently identifies “no compelling reason to accelerate the pace of hikes.” It also emphasises that “there is no evidence yet that inflation is becoming more broad-based and entrenched,” while acknowledging that “some policymakers will argue that the ECB cannot wait for clear evidence of second-round effects, because they would have to intervene more strongly after these dynamics start.”

In light of these conditions, Rabobank’s conclusion is that “developments in financial markets both allow and require the ECB to take some additional time to evaluate its next steps.” Although the analysts “don’t think that the recent tightening of financial conditions is strong enough to prevent another rate hike,” they warn that “market pricing of three more hikes still seems aggressive – not in the least part because favourable base effects should lessen energy inflation in early 2027.”

Warsh keeps Fed decisions tied to data as investment surges and AI risks emerge

A score of 5.6/10 on the FXS Speechtracker puts Fed Chair Warsh’s speech modestly below the historical average of 6.1/10. The reading points to a slightly less forceful message that nevertheless remains broadly in line with the established baseline. Warsh’s acknowledgement of being “over-scarred” by the global financial crisis reveals a cautious leaning, despite his emphasis on structural growth and an investment surge fuelled by “good policies,”. He also stresses that the forthcoming October and December meetings will “crystalize” decisions on output, employment and inflation, without committing in advance to a policy course. By presenting AI both as a source of demand with uncertain near-term employment consequences and as a means of improving data and monetary policy, Warsh introduces a forward-looking awareness of risk that moderates his optimism about the investment boom.

With a move of 0.00 points, the FXS Fed Sentiment Index held at 127.51. Its overall stance therefore remains firmly hawkish, notwithstanding the slightly softer FXS Speechtracker score. This unchanged, elevated reading suggests that markets continue to see Warsh’s focus on price stability, structural growth and surging investment as compatible with a preference for tighter policy. That interpretation persists even as the Fed considers tail risks associated with AI and financial stability.

Technical Analysis: EUR/USD stays bearish beneath the 100-day SMA

Trading below both the 100-day simple moving average (SMA) and the middle Bollinger band leaves EUR/USD with a bearish near-term bias on the daily chart. The pair remains in the lower half of the Bollinger envelope. Meanwhile, a Relative Strength Index (14) reading of around 38, below the neutral 50 mark, points to continued downward pressure rather than an imminent rebound.

The middle Bollinger band, near 1.1235, provides the first upside obstacle, ahead of more substantial resistance at the upper band around 1.13445. Sustained buying beyond that level could lift the pair towards the 100-day SMA at 1.1451, reinforcing a broader area of supply at higher levels. 

Support is initially provided by the 19 October low at 1.1185, with the lower Bollinger band at 1.1125 next in line. A decisive breach of this zone would clear the way towards the 12 May 2025 level of 1.0951. 

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