French debt concerns fail to halt Euro’s modest rise above 1.1200

• EUR/USD edges higher towards 1.1220 as early Asian trading gets under way on Monday.
• Further Euro gains could be constrained by worries over France’s debt and political situation.
• With ECB and Fed rate decisions due later this week, traders are preparing for both announcements.

A partial recovery takes EUR/USD towards 1.1220 in Monday’s early Asian trade, although unrest in France and political uncertainty could restrict further gains. Later on Monday, attention will turn to Germany’s IFO reports.

For a second consecutive weekend, demonstrations across France against deteriorating 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.

Near-term selling pressure on the single currency could stem from fears of escalating French unrest and a further deterioration in the country’s budget position.

According to Reuters, the European Central Bank (ECB) is set to retain its benchmark rate at 2.5% at Thursday’s October policy meeting, although markets have almost fully priced in a hike before the year ends. Any guidance on the rate outlook will draw close scrutiny from traders, following ECB President Christine Lagarde’s late-September remarks that a moderate policy response to inflation was appropriate.

In the US, the prevailing market expectation is for the Federal Reserve (Fed) to maintain interest rates just days ahead of the midterm elections.

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

Can ECB rate-hike expectations support the Euro despite risks from France?

Additional ECB tightening could offer the Euro support, 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 assessment, that potential tightening “limits policy divergence with the Fed and the drag on EUR/USD.” However, BBH also warns that “France’s fiscal troubles can drive EUR/USD down to 1.1000,” highlighting how country-specific concerns could counter the support offered by the wider Eurozone policy environment.

Will Warsh’s crisis caution, investment optimism and AI outlook keep Dollar bulls engaged?

At 5.6/10 on the FXS Speechtracker, Fed Chair Warsh’s speech comes in modestly below the historical average of 6.1/10. The score indicates a slightly less impactful tone, albeit one broadly aligned with the established baseline. Warsh’s acknowledgement of being “over-scarred” by the global financial crisis reveals an awareness of risk alongside his emphasis on structural growth, an investment upswing fuelled by “good policies,” and AI’s potential to drive near-term demand, with its employment effects still uncertain. Taken together, his focus on price stability, forthcoming “crystalizing” FOMC meetings and international spillovers conveys a cautious yet constructive position. This leaves Dollar-supportive expectations in place without committing in advance to a policy course for the remainder of 2026.

Despite the slightly softer FXS Speechtracker score, the FXS Fed Sentiment Index held steady at 127.51, a move of 0.00 points, remaining firmly within hawkish territory. The unchanged, elevated level indicates that markets continue to view 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 keep the Dollar supported against major counterparts.

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

Trading below the 100-day simple moving average (SMA), EUR/USD retains a bearish near-term outlook on the daily chart. Additional overhead pressure comes from the price remaining beneath the middle line of the Bollinger Bands, while the lower band provides the closest volatility floor. With the Relative Strength Index (RSI) at 39.7, below the 50 threshold, upward momentum remains weak. Further tests to the downside are therefore favoured unless the pair recaptures the mid-band area.

The Bollinger middle band around 1.1225 presents the first resistance on a recovery, ahead of the upper band near 1.1315. Further away, the 100-day SMA at 1.1450 remains a barrier that defines the trend. On a decline, the first significant support lies at the Bollinger lower band of 1.1140. A decisive break beneath it 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.)