Euro gains as hopes for Iran diplomacy weigh on USD, but French debt concerns limit upside

Prospects for diplomacy over Iran weigh on the USD, drawing modest buying into EUR/USD on Monday.
A hawkish ECB outlook lends the Euro further support, but the advance struggles to gain traction.
Final Eurozone PMIs are next on traders’ agenda, followed by the US ISM PMI.

Just above 1.1150, EUR/USD is posting a modest advance in Monday’s Asian session. Conflicting influences leave the move short of bullish conviction.

A December rate rise remains firmly on the table under the European Central Bank’s (ECB) hawkish outlook, offering the single currency some support as surging energy costs have heightened inflation risks. EUR/USD also benefits from hopes of diplomacy in the Middle East, which weigh on the safe-haven US Dollar (USD). On Sunday, Iranian negotiators reportedly met Qatari mediators for a third consecutive day of talks aimed at securing a deal to end the US-Israeli war on Iran. Iran has also put forward a two-day (48-hour) plan to reopen the Strait of Hormuz, conditional on the US fulfilling a series of requirements.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Although US President Donald Trump described talks with Tehran as productive, he has left open the possibility of further military action after the 3 November midterm elections. Iran’s Supreme Leader, Mojtaba Khamenei, has meanwhile instructed his top military commanders to prepare for renewed confrontation with the US and Israel and to broaden Tehran’s options for retaliation. Fresh Ukrainian strikes on Russian oil refineries also sustain the geopolitical risk premium. Together with expectations of a US Federal Reserve (Fed) rate rise, this should support the Greenback and limit any substantial gains in EUR/USD.

Around a 75% probability of another increase in US borrowing costs in December is now priced in by traders, according to the CME Group’s FedWatch Tool. Thursday’s US economic releases reinforced those expectations, pointing to continued economic resilience and persistent price pressures. Growing unease over France’s worsening debt position and political deadlock ahead of next year’s election could also restrain EUR/USD. For near-term direction, traders await the final Manufacturing PMIs before the US ISM Manufacturing PMI, although Friday’s US Nonfarm Payrolls (NFP) report will be the main focus for markets.

EUR/USD on the daily chart

Technical Outlook Remains Bearish

Trading firmly beneath its 50-day Simple Moving Average (SMA) at 1.1379, EUR/USD retains a bearish near-term bias. A dense cluster of overhead resistance also includes the 23.6% Fibonacci retracement at 1.1247 and the 38.2% retracement at 1.1336. Beyond these levels, the 50.0% retracement at 1.1408 provides further resistance, followed by supply zones at 1.1480 (61.8%), 1.1582 (78.6%) and the cycle high near 1.1712. Looking lower, the structural anchor around 1.1104 marks the next significant support. A test of that level could prompt buyers to try to slow the current bearish sequence.

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

Euro Questions Answered

The Euro serves the Eurozone’s member countries

Used by the 20 European Union countries within the Eurozone, the Euro ranks second only to the US Dollar among the world’s most actively traded currencies. Its share of all foreign exchange transactions stood at 31% in 2022, with average daily turnover exceeding $2.2 trillion. With an estimated 30% of all transactions, EUR/USD is the world’s most actively traded currency pair. It is followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

ECB policy influences the Euro

Based in Frankfurt, Germany, the European Central Bank (ECB) acts as the Eurozone’s reserve bank, setting interest rates and overseeing monetary policy. Maintaining price stability is the ECB’s principal mandate, whether through containing inflation or encouraging growth. It chiefly pursues this by increasing or reducing interest rates. Higher relative interest rates, or expectations that rates will rise, generally support the Euro; the reverse also holds. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone’s national banks and six permanent members, among them ECB President Christine Lagarde.

Inflation figures shape the Euro’s value

Measured through the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic gauge for the Euro. An inflation reading above expectations, particularly one exceeding the ECB’s 2% target, obliges the central bank to increase interest rates to bring price growth back under control. When interest rates are high relative to those elsewhere, the Euro usually benefits: the region becomes a more appealing destination for global investors’ funds.

Economic releases help determine the Euro’s direction

By indicating the economy’s health, data releases can move the Euro. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that can shape the single currency’s direction. Economic strength supports the Euro by drawing in more foreign investment and potentially encouraging the ECB to raise interest rates, which would directly strengthen the currency. Weak economic readings, by contrast, are likely to push the Euro lower. Particular weight attaches to data from Germany, France, Italy and Spain, the euro area’s four largest economies, which together represent 75% of the Eurozone economy.

The Trade Balance affects demand for the Euro

The Trade Balance is another important release for the Euro, recording the gap between a country’s export earnings and its spending on imports over a specified period. Strong overseas demand for a country’s exports generates additional demand for its currency as foreign buyers seek to purchase those goods, lifting the currency’s value. A positive net Trade Balance therefore strengthens a currency, while a negative balance has the opposite effect.