Euro slips below 1.1250 under pressure from French protests and fiscal risks

• Early Asian trading on Wednesday sees EUR/USD retreat towards 1.1225.
• Widespread protests and fiscal risks in France kept traders cautious about the Euro.
• A pause in Fed interest rates is likely this month, with tightening expected to resume later in the year.

Fiscal pressures and protests in France keep traders wary of the Euro (EUR), which weakens against the US Dollar (USD). EUR/USD slips towards 1.1225 in early Asian trading on Wednesday. Later in the day, speeches are due from European Central Bank (ECB) policymakers, including President Christine Lagarde, Philip Lane, Joachim Nagel and Piero Cipollone.

Ahead of a fresh wave of protests expected this weekend, a French official will deploy some military forces to help preserve order, CNBC reported. French Prime Minister Sébastien Lecornu also announced that fresh curfews would be imposed “where the situation requires it.”

Tommy von Brömsen, FX strategist at Handelsbanken, said: "The worries in France are not going away anytime soon," adding: "The bearish view on France will stay for a while longer, and there's much more euro weakness to be priced in,”

In the US, September’s first interest rate rise since 2023 has left markets assessing the Federal Reserve’s (Fed) next step. Although most Fed policymakers have projected at least one further increase this year, Fed Chairman Kevin Warsh signalled that he would not “prejudge” meetings.

According to the CME FedWatch tool, the probability assigned by traders to another quarter-point rise at the Fed’s October 27-28 meeting now stands at around 16.1%. For the December policy meeting, markets put the likelihood of a rate increase at over 90%.

Euro lags as Eurozone bond strains outweigh firmer German survey

Persistent pressure in Eurozone government bond markets is weighing on sentiment, according to Scotiabank strategists, who describe the EUR as “lagging its major currency peers” during the day. Pointing to the enduring risk premium in French debt, they note that the “10Y OAT/Bund spread remains elevate, near 150bps, reflecting social/fiscal tensions in France,”

Germany’s October ZEW Survey showed a better current assessment but weaker expectations, Scotiabank notes. The survey “reflected a solid improvement in the (still soft) Current Situation reading (-35.9 versus -44.5 expected and -47.1 in September) but some softening in the Expectations component (to 28.1, from 33).” While cautioning that this “survey of financial professionals tends to be heavily weighted by market, rather than economic, developments”, the bank concludes that it “generally indicates the economy remains in ‘slow recovery’ mode,” leaving limited room for a more pronounced Euro recovery.

Warsh balances crisis caution with optimism on investment and AI

At 5.6/10, the FXS Speechtracker score for Fed Chair Warsh’s remarks was slightly below the historical average of 6.1/10, suggesting a moderately constructive tone but only limited fresh information for markets. Warsh’s acknowledgement of being “over-scarred” by the Global Financial Crisis points to an enduring inclination towards vigilance over financial stability. At the same time, he emphasised structural growth, a surge in investment and AI’s positive role in strengthening confidence in data and policy, without committing in advance to the October and December decisions. By pairing optimism about the real economy and technology with a marked reluctance to prejudge the policy outlook, the speech leaves Dollar traders looking to the forthcoming FOMC meetings as the “crystalizing moment.”

A move of 0.00 points left the FXS Fed Sentiment Index unchanged at a still-hawkish 127.51. Despite the slightly weaker FXS Speechtracker score, this confirms that perceptions of the policy stance were not materially altered by the speech. The index remains firmly above 100, placing the Fed in hawkish territory. Structural growth, the investment surge and AI-led confidence in data therefore continue to underpin Dollar sentiment, even without any additional hawkish impetus.

Technical Analysis: EUR/USD remains under pressure below the 100-day SMA

Trading below both the 100-day simple moving average (SMA) and the 20-day Bollinger middle band leaves EUR/USD with a bearish near-term bias on the daily chart. Its position beneath the upper Bollinger band also points to consolidation with a downside bias within the bands. Meanwhile, the Relative Strength Index (14), at about 40, remains under the neutral 50 threshold, indicating muted bullish momentum.

The first resistance on any advance lies around 1.1250 at the 20-day Bollinger SMA. Beyond that sit the upper band near 1.1392 and the more important 100-day SMA at 1.1460, which limits broader recovery attempts. Below the market, the lower Bollinger band at roughly 1.1115 provides the next notable support. A sustained breach of that level would likely pave the way for a steeper decline towards previous cycle lows.

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