Euro makes modest gains above 1.1200 despite concerns over French debt

• Around 1.1220 is the level reached by EUR/USD as it advances in early Asian trading on Monday.
• Worries over French debt and political risks could limit the Euro’s gains.
• With ECB and Fed rate decisions due later this week, traders prepare for the announcements.

Near 1.1220, EUR/USD has regained some of its earlier losses in Monday’s early Asian session. Further gains could prove limited, however, as unrest in France and political uncertainty weigh on the outlook. Later on Monday, Germany’s IFO reports are scheduled for release.

For a second weekend running, demonstrations across France against mounting living costs and widening inequality descended into violence, CNBC reported. According to France’s Interior Ministry, approximately 410,000 people joined protests in several major cities, including Paris.

In the near term, the single currency could face selling pressure from fears about escalating French unrest and the country’s deteriorating budget position.

At Thursday’s October policy meeting, the European Central Bank (ECB) is expected to leave its benchmark rate at 2.5%, according to Reuters, although markets have almost fully priced in an increase before the end of the year. After ECB President Christine Lagarde said in late September that a moderate policy response to inflation was appropriate, traders will examine any signals about the direction of interest rates.

In the US, an unchanged interest rate decision from the Federal Reserve (Fed) is widely anticipated, just days ahead of the midterm elections.

According to the CME FedWatch tool, markets currently assign nearly a 90.6% probability to rates remaining unchanged at Wednesday’s October Fed meeting. The probability of a December increase by the US central bank stands at 79.4%.

Euro draws support from ECB rate rise prospects as French risks limit gains

Additional ECB tightening remains possible, according to strategists at Brown Brothers Harriman, who point out that “above target Eurozone inflation and a resilient growth outlook give the ECB scope to deliver additional hikes,” and observe that “the swaps curve implies nearly 75bps of tightening to 3.25% in the next twelve months.” In their view, this outlook “limits policy divergence with the Fed and the drag on EUR/USD.” Nevertheless, BBH warns that “France’s fiscal troubles can drive EUR/USD down to 1.1000,” highlighting how risks specific to France could counter the support offered by the wider Eurozone monetary policy outlook.

Dollar bulls watch as Warsh balances crisis caution with optimism on investment and AI

At 5.6/10, Fed Chair Warsh’s FXS Speechtracker score sits modestly below the historical average of 6.1/10. The reading indicates a slightly less impactful tone, albeit one broadly in line with the established baseline. Warsh’s acknowledgement of being “over-scarred” by the global financial crisis reflects an awareness of risks. Alongside that caution, Warsh points to structural growth, a surge in investment fuelled by “good policies,” and AI’s potential to boost near-term demand, while its employment effects remain uncertain. Taken together, the focus on price stability, forthcoming “crystalizing” FOMC meetings and international spillovers suggests a cautious yet constructive position. That leaves expectations supportive of the Dollar intact, without committing in advance to a policy course for the remainder of 2026.

A move of 0.00 points left the FXS Fed Sentiment Index at 127.51, still firmly hawkish despite the slightly softer FXS Speechtracker score for the speech. With the index holding at this elevated level, markets appear to regard the policy bias as consistently hawkish. Warsh’s attention to risks surrounding output, employment, inflation and financial stability reinforces expectations of continued Fed vigilance, which should remain supportive of the Dollar against its major counterparts.

Technical Analysis: EUR/USD retains bearish bias below the 100-day SMA

Trading below the 100-day simple moving average (SMA), EUR/USD retains a bearish short-term outlook on the daily chart. Further overhead pressure comes from the price remaining beneath the middle Bollinger Band, with the lower band providing the closest volatility floor. At 39.7, the Relative Strength Index (RSI) remains short of the 50 threshold. This points to subdued upward momentum and favours further tests to the downside unless the pair recovers the mid-band area.

The middle Bollinger Band, around 1.1225, provides the first resistance on any advance, ahead of the upper band near 1.1315. Further away, the 100-day SMA at 1.1450 represents a barrier that defines the broader trend. Initial meaningful support lies at the lower Bollinger Band at 1.1140. A decisive break beneath that level would pave the way for the daily chart’s current bearish phase to extend.

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