Near 1.1250: Euro advances as US midterm elections take centre stage

1.1240 is within reach as EUR/USD advances in early Asian trading on Wednesday.
Wednesday’s main focus will be the US midterm elections.
A December rate rise will probably be needed, according to ECB’s Nagel.

1.1240 is the approximate level for EUR/USD in early Asian trading on Wednesday. The pair inches higher as uncertainty surrounding the US midterm elections puts the US Dollar (USD) under some selling pressure against the Euro (EUR). Election results will be closely monitored by traders before the release of US September employment data later this week.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Control of Congress remains undecided as Americans cast their votes in midterm elections that will pass judgement on US President Donald Trump's second term. Key races have yet to be settled.

Media projections have named winners in about two dozen of the US House’s 435 seats. None were races expected to be competitive. According to US media projections, Democrats have secured the first seven of the 35 US Senate seats being contested on Tuesday, with US Senator Jon Ossoff winning in Georgia. Despite those early gains, a net increase of four seats is still required for the party to take control of the Senate.

The single currency also draws 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. Further rises may be needed, several officials have signalled. While economists anticipate the final rate move next month, markets price in a tightening cycle extending into 2027.

December hike risk persists as Euro slips

In quiet trading, the Euro is slightly weaker against the Dollar, Scotiabank analysts report, against a backdrop of continued hawkish ECB signals. They draw attention to ECB Governing Council member Radev’s statement that the October pause "does not mean that tightening is over," thus "keeping the door open for a December hike." Further policy action remains a significant possibility in market pricing, with Scotiabank noting that "Dec OIS are pricing in 22bps of tightening risk,"

European gas and power costs remain a key influence on the Eurozone inflation outlook, despite calmer headline energy markets. On 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."

On fiscal policy, there was little surprise from one of the Eurozone’s major sovereign borrowers. Scotiabank highlights that "France reported its September YTD budget balance of EUR159.2bn, in line with expectations,"

8.2/10 Nagel signal reinforces December hike prospects and Euro upside risk

At 8.2/10, ECB’s Nagel registers an FXS Speechtracker score well above his 7/10 historical average, signalling a more hawkish stance than usual and bolstering expectations of tighter policy. His explicit statement that “a rate hike in December is very likely to be necessary” accompanies a warning that inflation pressures are nearing an adverse scenario. Together, these signals show a clear preference for further tightening, supporting the Euro through interest-rate differentials.

Price stability remains Nagel’s central concern. He stresses the need to stop a surge in energy prices spreading into broad-based inflation, while maintaining that France’s budget problems are not a matter for monetary policy. His vigilance on inflation, coupled with confidence that fiscal issues can be contained, points to little tolerance for upside inflation surprises. That raises the likelihood of further rate increases and helps the Euro remain resilient against the Dollar and other major currencies in the near term.

100-day SMA caps EUR/USD: Technical Analysis remains bearish

Below the 100-day Simple Moving Average (SMA), EUR/USD retains a bearish short-term bias on the daily chart. Some demand remains evident as the price sits just above the middle line of the 20-day Bollinger Bands, but that support looks fragile. Immediate overhead resistance lies at the upper band of 1.1254. With the Relative Strength Index (RSI) at 46, below the 50 threshold, recovery efforts still lack convincing momentum.

The upper Bollinger band around 1.1255 provides the first upside barrier. Beyond it, the 100-day SMA near 1.1420 represents more substantial resistance, where sellers are likely to defend the wider downtrend. Initial support sits at 1.1195, the middle Bollinger band, followed by the lower band near 1.1135. A daily close beneath that lower level would strengthen the bearish structure and leave scope for additional declines.

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

Euro: key questions answered

20 Eurozone countries: which currency do they use?

The 20 European Union countries within the Eurozone use the Euro. Only the US Dollar is traded more heavily worldwide. The Euro represented 31% of all foreign exchange transactions in 2022, generating average daily turnover of more than $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world’s most actively traded currency pair. EUR/JPY follows at 4%, ahead of EUR/GBP at 3% and EUR/AUD at 2%.

ECB policy: how does it affect the Euro?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and overseeing monetary policy. Price stability is its core mandate, pursued by controlling inflation or stimulating growth. Interest-rate increases and cuts are its main instruments. Higher relative rates, or expectations that rates will rise, generally support the Euro; the reverse also applies. Monetary policy is decided by the ECB Governing Council, which meets eight times each year. The decision-makers comprise the heads of the Eurozone’s national banks and six permanent members, among them ECB President Christine Lagarde.

2% inflation target: why does it matter for the Euro?

Measured by the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic gauge for the Euro. An unexpectedly strong increase, particularly beyond the ECB’s 2% target, obliges the central bank to raise interest rates to regain control of price growth. When the region offers higher interest rates than its counterparts, it typically attracts more global investment. That greater appeal as a destination for capital usually supports the Euro.

75% of the Eurozone economy: which data drive the Euro?

Economic releases provide a measure of economic health and can move the Euro. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys all help determine the single currency’s direction. Economic strength supports the Euro by drawing in foreign investment and potentially prompting the ECB to raise interest rates, directly strengthening the currency. Weak data, by contrast, are likely to weigh on the Euro. Germany, France, Italy and Spain together represent 75% of the Eurozone’s economy. Releases from these four largest euro-area economies therefore carry particular importance.

Trade Balance: why does it influence the Euro?

The Trade Balance is another major release for the Euro. Over a specified period, it compares a country’s export earnings with its spending on imports. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods, lifting the currency’s value. A positive net Trade Balance consequently strengthens a currency, while a negative balance has the opposite effect.