French protests and fiscal risks weigh on euro as it slips below 1.1250

• Selling pressure takes EUR/USD towards 1.1225 in early Asian trade on Wednesday.
• Widespread protests and fiscal risks in France kept traders cautious towards the Euro.
• A pause in rates is likely from the Fed this month, with tightening expected to resume later in the year.

Caution over French protests and fiscal pressures weighs on the Euro (EUR) against the US Dollar (USD), pushing EUR/USD down towards 1.1225 in Wednesday’s early Asian session. Later in the day, markets will hear from European Central Bank (ECB) policymakers, including President Christine Lagarde, Philip Lane, Joachim Nagel and Piero Cipollone.

With another wave of protests anticipated this weekend, a French official will deploy some military forces to help preserve order, CNBC reported. Fresh curfews would also be imposed “where the situation requires it.” according to French Prime Minister Sébastien Lecornu.

Tommy von Brömsen, FX strategist at Handelsbanken, said: "The worries in France are not going away anytime soon," He added: "The bearish view on France will stay for a while longer, and there's much more euro weakness to be priced in,”

In the US, the Federal Reserve’s (Fed) September rate hike, its first since 2023, has left markets assessing the next policy move. Although most Fed policymakers project at least one further increase this year, Fed Chairman Kevin Warsh indicated that he would not “prejudge” meetings.

According to the CME FedWatch tool, traders assign around a 16.1% probability to a further quarter-point hike at the Fed’s October 27-28 meeting. The probability priced in for a rate increase at the December policy meeting exceeds 90%.

Why is the Euro lagging despite a better Germany survey as Eurozone bond strains persist?

Persistent pressure in Eurozone government bond markets is weighing on sentiment and leaving the Euro among the day’s underperformers, according to Scotiabank strategists. They describe the EUR as “lagging its major currency peers” and point out that the “10Y OAT/Bund spread remains elevate, near 150bps, reflecting social/fiscal tensions in France,” highlighting the lasting risk premium in French debt.

Turning to economic releases, Scotiabank says the Germany October ZEW Survey “reflected a solid improvement in the (still soft) Current Situation reading (-35.9 versus -44.5 expected and -47.1 in September) but some softening in the Expectations component (to 28.1, from 33).” While warning that this “survey of financial professionals tends to be heavily weighted by market, rather than economic, developments”, the bank says it “generally indicates the economy remains in ‘slow recovery’ mode,” leaving limited room for a more convincing Euro recovery.

How does Warsh balance crisis caution with optimism on investment and AI?

Dollar traders remain focused on the coming FOMC meetings as the “crystalizing moment.” after a speech in which Fed Chair Warsh paired optimism on the real economy and technology with reluctance to signal the policy path in advance. His moderately constructive remarks received an FXS Speechtracker score of 5.6/10, slightly below the historical average of 6.1/10, suggesting only modest additional information for markets. By acknowledging that he was “over-scarred” by the Global Financial Crisis, Warsh revealed an enduring inclination towards vigilance on financial stability. At the same time, he stressed structural growth, a surge in investment and AI’s positive role in data and policy confidence, without committing in advance to October or December decisions.

Despite the slightly softer FXS Speechtracker reading, perceptions of the policy stance saw no material change: the FXS Fed Sentiment Index moved 0.00 points, remaining at a hawkish 127.51. A reading firmly above 100 keeps the Fed in hawkish territory. Structural growth, the investment surge and AI-led confidence in data continue to underpin Dollar sentiment, even in the absence of a further hawkish shift.

Technical Analysis: Can EUR/USD shake off its bearish bias below the 100-day SMA?

With spot trading below both the 100-day simple moving average (SMA) and the 20-day Bollinger middle band, the daily chart points to a bearish near-term outlook for EUR/USD. Trading beneath the upper Bollinger band also supports a downside bias in consolidation within the bands. Meanwhile, the Relative Strength Index (14), at about 40, remains below the neutral 50 mark, indicating muted bullish momentum.

Any recovery first faces resistance around 1.1250 at the 20-day Bollinger SMA, ahead of the upper band near 1.1392. The more important 100-day SMA at 1.1460 continues to constrain broader recovery attempts. Support next comes from the lower Bollinger band at roughly 1.1115; a sustained breach of that level would likely pave the way for a steeper decline towards previous cycle lows.

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