Higher oil prices and French fiscal risks see euro surrender early gains

• Euro relinquishes early gains against the US Dollar as several headwinds weigh.
• High oil prices and concerns over French public finances maintain pressure on the Euro.
• Interest rates are expected to remain on hold at both the Fed and the ECB next week.

At around 1.1234 in Thursday’s European session, the Euro (EUR) is little changed against the US Dollar (USD), having relinquished its earlier gains. Several headwinds facing the single currency are weighing on the major currency pair.

Energy costs and French debt worries weigh on Euro sentiment

The Euro’s latest retreat has largely reflected sentiment, according to strategists at Danske Bank, who emphasise that “the decline in the pair is driven by the combination of high energy prices and EUR-pessimism on the back of French debt worries.” In their view, these pressures have deepened the caution already surrounding the single currency. Investors remain reluctant to increase their Euro exposure, even without a clear directional catalyst from wider markets.

The continent’s heavy dependence on imported energy leaves the Euro exposed to rising oil prices. At the time of writing, WTI Oil is up 2%, trading near $99.50.

Friday brings the preliminary October PMI releases for the Eurozone and the United States (US), which investors are awaiting. Aggregate business activity is forecast to have grown once more in both economies, albeit at a moderate rate.

Next week’s monetary policy decisions from the European Central Bank (ECB) and the Federal Reserve (Fed) will provide key catalysts for the Euro and the US Dollar. Both central banks are expected to keep interest rates on hold.

EUR/USD retains a mild bearish bias below its short-term EMA

Trading at 1.1231 on the daily chart, EUR/USD remains beneath its 20-day Exponential Moving Average (EMA) of 1.1266, leaving the outlook mildly bearish. Continued resistance from this short-term EMA indicates that rallies are still attracting sellers. Meanwhile, a Relative Strength Index (RSI) reading near 40 points to weak but stabilising downward momentum, rather than outright oversold conditions.

An initial hurdle for buyers is the 20-day EMA at 1.1266: reclaiming it would relieve the prevailing pressure and pave the way for a more sustained recovery. With no nearby measured support levels in the data set, however, spot remains exposed to further declines towards previous price lows. Sentiment is likely to remain fragile for as long as EUR/USD holds below the short-term EMA.

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