Below 1.1200: Euro retreats as traders prepare for Fed, ECB rate decisions

• 1.1170 is the approximate level for EUR/USD as it edges lower in early Asian trading on Tuesday.
• This week’s Fed and ECB policy meetings are in focus as traders look for fresh catalysts.
• France retains its credit rating at Moody’s.

1.1170 is where EUR/USD trades as its decline continues. Risk aversion is weighing on the pair in Tuesday’s early Asian session. With interest rate decisions from the US Federal Reserve (Fed) and European Central Bank (ECB) due later this week, markets may become cautious as the day progresses.

An unchanged interest rate is the likely outcome of the Fed’s October meeting on Wednesday. Last month, the US central bank delivered its first increase since 2023, lifting rates by 25 basis points (bps) to a range of 3.75% to 4%.

According to the CME FedWatch tool, Fed funds futures now imply just a 10% chance of another quarter-point increase at the October policy meeting. The probability of at least one rate rise by year-end stands at nearly 75%.

Heather Long, chief economist at Navy Federal Credit Union, said: “Inflation is still the No. 1 problem in the U.S. economy, and there are a lot of signs it is getting more broad-based,” adding: “For consumers, it means really high borrowing costs for the foreseeable future.”

On the October decision, however, Heather added, “given that it’s right before an election,” and concluded, “they won’t hike in October.”

Despite steadily mounting debt and political fragmentation that has hindered efforts to curb borrowing, France retained its Aa3 credit rating at Moody’s Ratings last week, according to the Wall Street Journal. The decision reduced concerns that the country’s fiscal difficulties could prompt a wider repricing of Eurozone assets. That may limit losses for the single currency.

Against a backdrop of slowing economic momentum, the ECB is expected to hold its key interest rate steady on Thursday. A 25 bps increase at the December meeting is forecast by economists polled by Reuters. For indications of the bank’s future policy path, traders will scrutinise remarks from the ECB’s Christine Lagarde.

EUR 90/MWh breached: Euro pressured as energy shock and France risks put ECB in focus

Rising energy costs and French fiscal and political risks continue to weigh on the Euro, according to MUFG analysts. They describe its recovery at the start of the new week as “modest” after “falling to fresh year-to-date lows against the Pound and Yen,” making it “the worst performing G10 currency this month”. Sentiment remains under pressure from “rising energy prices and heightened investor concerns over fiscal and political risks in France.” On energy, MUFG notes that “the price of natural gas in Europe has risen sharply this month by more than a third lifting it above EUR 90/MWh heading into the winter,” which is “reinforcing stagflation risks for the euro area economy.” The analysts acknowledge that “so far this year the euro area economy has proven more resilient than expected to the energy price shock,” but warn that “the release of the euro area PMI survey at the end of last week signalled that growth momentum may be about to soften.”

For French bonds and the single currency, MUFG sees limited respite from the rating decision: “we don’t expect Moody’s decision to leave their rating on hold to bring much relief for French bonds or the euro, although it may prevent further selling at the start of this week ahead of the ECB’s upcoming policy meeting.” The analysts instead highlight that “the ECB’s upcoming policy meeting has more potential to be a bigger market mover,” while cautioning that “we believe it is too soon to expect the ECB to announce policy measures to support government bond markets.”

5.6/10 speech score: Warsh weighs investment surge and AI risks; Fed stays hawkish

A score of 5.6/10 on the FXS Speechtracker puts Fed Chair Warsh’s speech modestly below the historical average of 6.1/10. The reading indicates caution despite his optimism about structural growth and a surge in investment. By acknowledging being “over-scarred from the global financial crisis”, Warsh signals a continuing emphasis on protection against tail risks. He also points to policy-driven investment strength without committing in advance to outcomes at the October and December meetings. His treatment of AI as a near-term demand shock with uncertain implications for employment, alongside potential financial stability spillovers, underlines a risk-conscious approach. This moderates an otherwise positive account of the US economy and the Dollar.

At 127.51, the FXS Fed Sentiment Index remains elevated after a 0.00-point move. The unchanged reading suggests that Warsh’s speech has left the Fed’s hawkish policy lean broadly intact, notwithstanding the slightly lower FXS Speechtracker score. The index is still firmly above its neutral 100 level. Markets are therefore likely to view his comments on price stability, surging investment and AI-related risks as consistent with a continued preference for restrictive policy, supporting the Dollar against the Euro and Yen.

Technical Analysis: 100-day SMA caps EUR/USD as bearish bias persists

Below both the 100-day simple moving average (SMA) and the middle Bollinger band, EUR/USD retains a bearish near-term outlook on the daily chart. A position just above support at the lower Bollinger band suggests an attempt to stabilise in the short term. However, the Relative Strength Index (RSI) reading of 34 leaves the pair close to bearish territory. Downward pressure therefore remains dominant, despite a modest rebound from recent lows.

The lower Bollinger band at 1.1140 offers immediate support. A clear break beneath that area would pave the way for the broader downtrend to resume; holding above it would leave EUR/USD in a corrective consolidation below clustered resistance. Any advance would first encounter the middle Bollinger band near 1.1215, then the upper band at 1.1295. If the recovery extends, the 100-day SMA at 1.1445 would provide a stronger structural barrier.

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