Euro holds gains above 1.1200 despite France’s bond turmoil
- EUR/USD rebounds to around 1.1215 in Monday’s early Asian session.
- US Consumer Sentiment deteriorates further in October.
- French bond woes might cap the upside for the Euro.
The EUR/USD pair recovers some lost ground to near 1.1215 during the early Asian trading hours on Monday. The US Dollar (USD) softens against the Euro (EUR) after weaker-than-expected US Consumer Sentiment data. European Central Bank (ECB) Vice President Boris Vujčić is set to speak later in the day.
US consumer sentiment deteriorated further in October as soarinf oil prices due to the Middle East conflict soured households' views of the economy, the University of Michigan's (UoM) Surveys of Consumers showed on Friday. The UoM Consumer Sentiment Index dropped to 46.3 in October from 48.1 in September. This reading came in below the market consensus of 47.6.
Additionally, UoM one-year inflation expectations climbed to 4.7% in October from 4.6% in the previous reading. Consumers' expectations for inflation over the next five years jumped to 3.5% percent from 3.4% in September. However, this data has cemented expectations for a 25 basis points (bps) Federal Reserve (Fed) rate hike at their upcoming meeting.
On the other hand, French debt turmoil could exert some selling pressure on the shared currency. French government bond yields have surged to multiyear highs in recent days, as the country’s mounting debt crisis fuels wider concerns about Europe’s strained public finances.
Traders will closely monitor Italy amid contentious new government spending plans. The Italian government is set to introduce a budget encompassing recently approved allocations to defense and energy, which are expected to increase the country’s budget deficit over the next two years and push its debt-to-GDP ratio toward the highest level in Europe, according to CNBC.
Euro steadies as Eurozone resilience offsets rising China trade risks
Analysts at MUFG argue that, despite recent Euro weakness, they “continue to see evidence of economic resilience in Europe that could help stabilise the euro at these lower levels.” They point to Germany, where “the Economy Ministry… revised up its GDP growth projection from 0.5% and 0.9% for this year and next to 1.3% and 1.1% respectively.” Growth had previously been downgraded in response to the war, but MUFG notes that “the new estimate for this year is above the 1.0% estimate at the start of the year underlining the level of resilience.”
At the same time, the bank highlights mounting trade frictions with China as a potential headwind for the single currency. MUFG flags “speculation that Europe is soon to respond with agreeing to a more flexible trade policy mechanism that would allow for easier implementation to counter against huge imports to Europe from China,” adding that “an import cap could be agreed as well as additional tariffs that could see trade tensions rise and prompt retaliation from China.” The bank warns that “these talks could be the final opportunity to avoid increased tensions,” and cautions that “an escalation into grater trade conflict could be another EUR negative factor.”
On the currency side, MUFG observes that “this mounting pressure looks to be encouraging China too allow renewed gains.” They note that “recent PBoC fixing in USD/CNY indicate a desire to keep CNY on a strengthening path despite the broader gains for the dollar,” with “EUR/CNY… 10% lower from the January high” and “near-term scope for further declines.” The bank adds that “the continued CNY strength is helping isolate Asian currencies from the broader dollar gain,” pointing out that “while the DXY has advanced 3.3% from the September low, the dollar against a basket of Asia FX is just 0.7% higher.”
Moulin pins Eurozone inflation on energy as geopolitical shock deepens
Moulin’s 6.2/10 score matches the historic average on FXS Speechtracker, signaling no meaningful shift in tone from past communications. By stressing that inflation is “clearly 100% energy” and that second-round effects are not visible, the speech leans mildly dovish on the underlying inflation dynamic, even as Moulin acknowledges an inflationary shock.
At the same time, the warning that the geopolitical shock is transmitting into a financial shock, while Euro area growth remains “quite resilient,” keeps the door open for the ECB to maintain a cautious policy stance. For the Euro, this mix of energy-driven inflation and resilience in activity suggests limited immediate hawkish escalation, but it reduces the scope for aggressive easing expectations in the near term.
Technical Analysis: EUR/USD retains a negative tone amid oversold conditions
In the daily chart, EUR/USD extends a bearish phase with spot holding below the 100-day simple moving average (SMA) and even beneath the Bollinger Bands’ 20-day middle line. This configuration keeps the pair structurally capped on rallies, while the Relative Strength Index (14) around 27 suggests oversold conditions that may slow, but not yet reverse, the downside pressure.
On the downside, immediate support is aligned with the lower Bollinger Band at roughly 1.1125, where sellers could start to book profits if reached. On the topside, initial resistance emerges at the Bollinger 20-day middle band around 1.1345, followed by the 100-day SMA at 1.1490 and then the upper Bollinger band near 1.1560, levels that would need to be reclaimed to ease the current bearish bias.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.