Euro climbs to near 1.1250 as US midterm elections take centre stage

• EUR/USD advances towards 1.1240 as Wednesday’s Asian session gets under way.
• Wednesday’s focus turns to the US midterm elections.
• A December rate rise will probably be needed, according to the ECB’s Nagel.

At around 1.1240, EUR/USD is modestly higher in early Asian trading on Wednesday, as uncertainty surrounding the US midterm elections puts some selling pressure on the US Dollar (USD) against the Euro (EUR). With US September employment figures due later this week, traders will first scrutinise the election results.

Control of Congress remains undecided as Americans cast their ballots in midterm elections that will pass judgement on US President Donald Trump's second term. Several pivotal contests have yet to be resolved.

Media projections have called roughly two dozen of the US House's 435 seats, although none of those races had been expected to be close. According to US media projections, Democrats have taken the first seven of the 35 US Senate seats being contested on Tuesday, with US Senator Jon Ossoff winning in Georgia. Despite those early successes, a net gain of four seats is still required for the party to secure control of the Senate.

The single currency is also drawing support from hawkish remarks by European Central Bank (ECB) policymakers. Speaking on Tuesday, ECB Governing Council member Joachim Nagel said a deteriorating inflation outlook would probably require the central bank to raise borrowing costs next month.

After two increases since the Iran war began, the ECB left its key interest rates unchanged last week. A number of officials have since signalled that further rises may be needed. While economists anticipate a final rate move next month, market pricing points to tightening extending into 2027.

Euro slips as ECB signals keep a December rate rise in play

Against a backdrop of continued hawkish ECB communication, Scotiabank analysts describe the Euro as slightly weaker against the Dollar in quiet trading. They draw attention to ECB Governing Council member Radev's assertion that the October rate pause "does not mean that tightening is over," thereby "keeping the door open for a December hike." The bank adds that "Dec OIS are pricing in 22bps of tightening risk," indicating that markets continue to assign a meaningful probability to further policy action.

Turning to commodities, Scotiabank notes that "despite the drop in crude oil prices this week, the European energy focus remains on natgas/power where prices have eased but remain significantly above even the most pessimistic ECB forecasts." Although headline energy markets look calmer, persistently elevated gas and electricity costs are still influencing the Eurozone inflation outlook.

On fiscal matters, Scotiabank highlights that "France reported its September YTD budget balance of EUR159.2bn, in line with expectations," pointing to no substantial surprise from one of the Eurozone’s major sovereign borrowers.

Euro upside risk gains support from Nagel’s December rate signal

At 8.2/10, the FXS Speechtracker score for the ECB’s Nagel stands well above his historical average of 7/10, signalling a more hawkish message than usual and bolstering expectations of tighter policy. His explicit statement that “a rate hike in December is very likely to be necessary”, coupled with a warning that inflation pressures are nearing an adverse scenario, points to a clear preference for further tightening. Interest rate differentials therefore offer support to the Euro.

Price stability remains central to Nagel’s message: he stresses the need to stop an energy price surge spreading into broad-based inflation, while making clear that monetary policy is not responsible for resolving France’s budget problems. Together, his vigilance on inflation and confidence in fiscal containment imply little tolerance for upside inflation surprises. That raises the likelihood of further rate increases and helps underpin the Euro against the Dollar and other major currencies in the near term.

Technical Analysis: EUR/USD retains a bearish bias below the 100-day SMA

With spot still constrained below the 100-day Simple Moving Average (SMA), the daily EUR/USD chart points to a bearish near-term outlook. Holding just above the middle line of the 20-day Bollinger Bands, the pair shows signs of underlying demand, albeit fragile. Immediate resistance lies at the upper band of 1.1254. Meanwhile, a Relative Strength Index (RSI) reading of 46, below the 50 threshold, suggests recovery attempts lack convincing momentum.

The first upside hurdle is the upper Bollinger band around 1.1255, followed by the more significant 100-day SMA near 1.1420, where sellers are likely to seek to preserve the broader downtrend. Initial support sits at the middle Bollinger band of 1.1195, ahead of the lower band near 1.1135. A daily close beneath that lower support would strengthen the bearish pattern and leave scope for additional losses.

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