Euro rises as demand for French bonds recovers, with ECB-Fed policy in focus

• EUR/USD edges towards 1.1210 amid broad euro outperformance.
• France’s Aa3 sovereign rating was reaffirmed by Moody’s, contrary to expectations of a downgrade.
• Interest rates are expected to remain unchanged at this week’s Fed and ECB meetings.

At around 1.1210 against the US dollar in Monday’s European session, the euro (EUR) retains a modest gain despite surrendering part of its earlier advance. The currency is also trading higher against its other peers.

Euro finds support as France avoids a rating downgrade

Moody’s decision to retain France’s Aa3 sovereign rating, rather than downgrade it as expected, is drawing buyers to the euro.

According to analysts at Danske Bank, Moody’s late-Friday decision to reaffirm France’s Aa3 sovereign rating with a negative outlook defied "wide market expectations of a downgrade." The analysts say the agency’s position relies on the assumption "that a deficit-reducing 2027 budget will be adopted and that financing costs and social tensions will abate somewhat in the coming months."

As Danske Bank notes, Moody’s now "expects a deficit of 5.2% of GDP next year, down from the 5.4% the government expects this year but slightly above its 5% target."

Although Moody’s left the sovereign rating at Aa3, it cautioned that social unrest "could constrain fiscal consolidation efforts," while unrest persisted over the weekend, though more peacefully than the previous week. Unions have already called a nationwide strike for 5 November.

Attention on monetary policy now turns to Wednesday’s announcement from the Federal Reserve (Fed), followed by the European Central Bank (ECB) on Thursday.

With both central banks expected to keep interest rates at their existing levels, market participants will scrutinise their policy guidance. They will also look for comments on whether energy supply shocks are beginning to feed through to wages and wider consumer prices.

In the euro area, Germany’s IFO Institute Business Climate Index has exceeded expectations, rising to 90.2 in October from September’s 89.9. Forecasts had pointed to a decline to 89.8.

EUR/USD Remains Under Pressure Below Its Moving Average

Trading near 1.1212 on the daily chart, EUR/USD remains below the 20-period exponential moving average (EMA) at 1.1254, leaving the near-term outlook bearish. Failure to regain this dynamic resistance suggests that recent declines continue to weigh on the pair. Meanwhile, the Relative Strength Index (RSI), at around 39, sits below the neutral 50 mark, pointing to limited attempts at recovery against a broadly weak backdrop.

The 20-day EMA around 1.1254 provides the first resistance on the upside. Only a sustained move above it would relieve the prevailing downward pressure and allow a more positive corrective phase to develop. With no nearby support levels mapped in the dataset, the recent lows serve as an informal floor for now. Price action is likely to remain exposed to further declines while the pair trades beneath that moving-average barrier.

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