Market Update: EUR/USD Drops Amid French Protests

The EUR/USD exchange rate has declined to approximately 1.1225 in early Asian trading on Wednesday. The Euro is losing strength against the US Dollar, largely due to ongoing protests in France and some fiscal uncertainties, which are causing traders to be somewhat cautious. Later today, several European Central Bank (ECB) officials, including President Christine Lagarde, are scheduled to speak, along with Philip Lane, Joachim Nagel, and Piero Cipollone.

According to news sources, French authorities are preparing to deploy military personnel to help maintain order in light of a new wave of protests expected this weekend. French Prime Minister Sébastien Lecornu mentioned that curfews may be reinstated “where necessary.”

FX strategist Tommy von Brömsen from Handelsbanken expressed concerns about the situation, stating, “The worries in France are not going away anytime soon. The bearish outlook for France is likely to persist, and I think there’s still more Euro weakness that needs to be factored in.”

In the US, the focus is on the Federal Reserve’s next steps after its recent rate hike—the first since September 2023. Fed Chairman Kevin Warsh indicated he wouldn’t “prejudge” future meetings, though many Fed policymakers expect at least one more rate increase this year.

Current market estimates suggest a 16.1% probability of another quarter-point hike during the Fed’s meeting scheduled for October 27-28. But for December, the chances of a rate increase are over 90%, according to the CME FedWatch tool.

Euro Struggles as Bond Market Tensions Continue

Strategists at Scotiabank have noted a weak performance from the Euro, with the currency falling behind others. Ongoing issues in Eurozone bond markets seem to be affecting market sentiment. They pointed out that the spread between the French 10-year OAT and the German Bund remains high at around 150bps, which reflects ongoing social and fiscal tensions within France and indicates a persistent risk premium on French debt.

On the data side, Scotiabank highlighted the positive outcome of the German October ZEW Survey, which showed an improvement in the Current Situation reading, coming in at -35.9 as opposed to the anticipated -44.5. However, the Expectations component softened to 28.1, down from 33. While they stressed that this survey is largely influenced by market conditions rather than economic ones, it still suggests a slow recovery at best, leaving little hope for a significant Euro rebound.

Warsh’s Remarks: Caution on Crisis Impact but Optimistic on Investment and AI

Fed Chair Warsh delivered a speech that had a somewhat positive tone, with a score of 5.6 out of 10 on the FXS Speechtracker, which is slightly below the historical average of 6.1. This suggests only mild new insights for the market. He acknowledged being “over-scarred” by the Global Financial Crisis, highlighting a cautious approach to financial stability. Yet, he also pointed to strong structural growth, booming investments, and the promising role of AI in boosting data and policy confidence, all while avoiding any commitment regarding the upcoming October and December decisions. In summary, he balanced a sense of optimism about the economy and technology with a clear reluctance to set a policy course just yet, which keeps Dollar traders attuned to the forthcoming FOMC meetings.

Unchanged at 127.51, the FXS Fed Sentiment Index indicates no shift in the overall policy outlook following Warsh’s speech, despite the slightly lower Speechtracker score. With the index remaining above 100, the Fed is still considered hawkish. The combination of sustained growth, investment enthusiasm, and AI-driven confidence continues to bolster sentiment around the Dollar, even without a new hawkish signal.

Technical Analysis: EUR/USD Remains Bearish Below Key Levels

Examining the daily chart, the EUR/USD pair has a bearish outlook as it remains under the 100-day simple moving average (SMA) and below the 20-day Bollinger middle band. The price is also situated below the upper Bollinger band, suggesting a downside-oriented consolidation, while the Relative Strength Index (14) around 40 indicates weak bullish momentum.

Resistance is set to appear first at the 20-day Bollinger SMA near 1.1250, then at the upper band around 1.1392, and finally at the significant 100-day SMA at 1.1460, which is expected to cap any broader recovery efforts. Meanwhile, the lower Bollinger band positioned at roughly 1.1115 serves as the next key support. If the price sustainably drops below this level, it could signal a deeper downward movement toward previous cycle lows.