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

• Selling pressure takes EUR/USD towards 1.1210 in early European trade on Friday.
• Thursday saw the premium sought by investors for holding French government debt rather than German Bunds reach a 15-year high.
• Below the crucial 100-day SMA, the pair’s outlook remains bearish.
• Initial resistance stands at 1.1235, while 1.1185 is the first support to monitor.

Selling pressure on the Euro (EUR) against the US Dollar (USD) leaves EUR/USD trading lower around 1.1210 in Friday’s early European session. French government bonds have come under strain as investors question France’s capacity to address its sizeable debt burden.

Reflecting mounting unease about France’s fiscal prospects, the yield spread against German Bunds reached 177.7 bps, its widest since the eurozone debt crisis in November 2011. France’s benchmark 10-year government bond yield rose 6.5 basis points to 5.06%, having briefly touched 5.1415%, a level last seen in July 2002.

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

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, a rate increase before year-end is almost fully priced in, although the European Central Bank (ECB) is expected to leave its benchmark rate unchanged at 2.5% next week.

Why does Rabobank expect an October ECB pause before a final December hike?

A pause this month, rather than an end to tightening, is the expectation of Rabobank analysts, who argue that “the ECB’s tightening cycle may not be over, but the next rate hike will probably not materialise this month,” and expect the central bank to “hold policy unchanged, leaving the deposit rate at 2.50%.” 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 to act again immediately.

Looking back at the response to the energy shock, Rabobank says that “so far, the ECB has managed the inflation and growth risks of the energy shock well. They tightened proactively, but gradually.” The bank expects that approach to continue, arguing 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.”

An immediate acceleration is unwarranted in the bank’s view, with “no compelling reason to accelerate the pace of hikes.” Rabobank points out 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.”

Financial market conditions therefore support a more measured approach, with Rabobank concluding that “developments in financial markets both allow and require the ECB to take some additional time to evaluate its next steps.” Its analysts “don’t think that the recent tightening of financial conditions is strong enough to prevent another rate hike,” although 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.”

How do investment growth and AI risks shape Warsh’s data-dependent Fed outlook?

A broadly familiar, though slightly less impactful, message emerges from Fed Chair Warsh’s speech, which registers 5.6/10 on the FXS Speechtracker against a historical average of 6.1/10. While pointing to structural growth and a surge in investment underpinned by “good policies,” Warsh reveals a cautious bias through his acknowledgement of being “over-scarred” by the global financial crisis. He avoids committing to a policy course, emphasising instead that the forthcoming October and December meetings will “crystalize” decisions on output, employment, and inflation. His treatment of AI introduces a forward-looking awareness of risk that moderates the optimism surrounding the investment boom: he describes it both as a demand-side force with unclear near-term effects on employment and as a means of improving data and monetary policy.

Despite the marginally softer FXS Speechtracker reading, the overall stance remains firmly hawkish: the FXS Fed Sentiment Index recorded a 0.00-point move and held at 127.51. That unchanged, high reading indicates that markets continue to view Warsh’s focus on price stability, structural growth, and the investment surge as aligned with a preference for tighter policy. This remains the case even as the Fed assesses tail risks linked to AI and financial stability.

Technical Analysis: Can EUR/USD shake off its bearish bias below the 100-day SMA?

Persistent downside pressure, rather than an imminent rebound, is indicated by EUR/USD’s daily chart. The Relative Strength Index (14), at around 38, remains beneath the neutral 50 mark, while prices occupy the lower half of the Bollinger envelope. With spot also below both the Bollinger middle band and the 100-day simple moving average (SMA), the near-term outlook stays bearish.

A recovery would first encounter resistance near 1.1235 at the Bollinger middle band, followed by a more formidable barrier around 1.13445 at the upper Bollinger band. Sustained buying beyond that threshold could lift the pair towards the 100-day SMA at 1.1451, adding to the broader supply zone at higher levels. 

Should the pair weaken, the first support lies at 1.1185, the low recorded on 19 October, ahead of the lower Bollinger band at 1.1125. A decisive breach of this zone would expose the 1.0951 level recorded on 12 May 2025. 

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