Below 1.1150: Euro stabilises as traders prepare for Fed rate decision

1.1125 is EUR/USD’s broadly unchanged level in early Asian trading on Wednesday.
October’s Fed meeting is expected to leave benchmark interest rates unchanged.
Wednesday brings the Fed’s latest policy announcement, followed by the ECB’s decision on Thursday.

1.1125 is where EUR/USD is holding steady in Wednesday’s early Asian session. With the US Federal Reserve (Fed) due to announce its interest rate decision on Wednesday, traders are staying on the sidelines rather than building large positions. The European Central Bank (ECB) policy meeting later on Thursday will then take centre stage.

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

An unchanged benchmark interest rate, within the current target range of 3.75% to 4.0%, is widely anticipated from the Fed on Wednesday. Any clues from Fed Chair Kevin Warsh about the policy outlook will draw close scrutiny from traders.

According to the CME FedWatch tool, markets assign a nearly 92.8% probability to the US central bank leaving rates unchanged at its October policy meeting. For December, the probability of a US rate increase is 84.4%.

Bank of America analysts led by Mark Cabana said: "USD risks skew lower on a hold: hawkish messaging is broadly neutral, while a dovish hold risks outsized USD weakness,"

A 1.70% decline against the US Dollar (USD) put the Euro (EUR) on course to rank as October’s weakest developed-market currency. Elevated energy costs, volatility in French government bonds and concerns over France’s fiscal position could put the single currency under selling pressure in the near term.

Following September’s 25 bps increase, the ECB is set to keep its key interest rates on hold at Thursday’s upcoming meeting.

Euro rebound falters amid ECB caution and firm Fed expectations

Energy costs and fiscal pressures remain central to the assessment from Societe Generale strategists. They note that the Euro “really hasn’t been able to manage much of a bounce, regardless of shorts,” citing “energy prices, fiscal concerns and social unrest” as drags on the single currency. Their view is that “if the FOMC message (whatever that looks like in the brave new world) keeps December hike expectations alive, our bias is to remain dollar-positive, and unless the ECB is very hawkish, European economic fundamentals will weigh.”

Warsh highlights investment surge and AI demand risks without committing to policy path

At 5.6/10, Fed Chair Warsh’s FXS Speechtracker score fell short of the established 6.1/10 baseline, reflecting a moderately constructive message with slightly less impact. His admission of being "over-scarred from the global financial crisis" points to caution on financial stability. Alongside his focus on structural growth and surging investment, it reinforces a watchful approach rather than a decisive hawkish or dovish shift. By stressing that upcoming meetings should not be prejudged and that AI’s near-term employment effects remain uncertain, Warsh signalled dependence on incoming data and reluctance to commit to a predetermined policy course.

A 0.00-point daily change left the FXS Fed Sentiment Index at a firmly hawkish 127.51. The unchanged reading indicates that the speech largely matched existing expectations instead of altering the policy narrative. Taken together, the steady index and middling FXS Speechtracker score suggest markets interpreted Warsh’s remarks as confirming the prevailing hawkish bias, without providing a new catalyst for US Dollar repricing.

100-day SMA caps EUR/USD: Technical outlook stays bearish

On the daily chart, the 20-day simple moving average (SMA), which forms the Bollinger Bands’ mid-line, and the much higher 100-day moving average create a strong overhead ceiling for EUR/USD. Trading below both leaves the pair under clear bearish pressure. The price also sits just beneath the lower Bollinger Band, reinforcing the persistent downside bias. Meanwhile, a Relative Strength Index (RSI) reading of 30.3 is close to oversold territory. Bears therefore retain control, although occasional corrective rebounds could interrupt further declines.

Around 1.1130, the lower Bollinger Band provides the first resistance. Further hurdles lie at the Bollinger mid-line near 1.1205 and the upper band at 1.1280, before the more strategic 100-day moving average around 1.1440. Below the current price, the indicator set identifies no meaningful support levels, leaving further losses liable to take the pair towards fresh lows. A move back above the 20-day SMA would be needed to begin relieving the prevailing bearish pressure.

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

Euro: Frequently asked questions

Euro essentials: Which countries use it?

Used by the 20 European Union countries in the Eurozone, the Euro ranks second only to the US Dollar among the world’s most traded currencies. Its share of all foreign exchange transactions reached 31% in 2022, with average daily turnover exceeding $2.2 trillion. With an estimated 30% of all transactions, EUR/USD is the world’s most actively traded currency pair. Next come EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (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. Maintaining price stability is the ECB’s main mandate, whether through containing inflation or supporting growth. Interest rate increases and cuts are its principal tools. Higher relative rates, or expectations of an increase, generally support the Euro; the reverse also applies. Monetary policy is decided at eight meetings each year by the ECB Governing Council. The decision-makers comprise the heads of the Eurozone’s national banks and six permanent members, among them ECB President Christine Lagarde.

Inflation data: What drives the Euro’s response?

Measured by the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic gauge for the Euro. An inflation reading above expectations, particularly one exceeding the ECB’s 2% target, obliges the central bank to increase interest rates to regain control of prices. When the region’s interest rates are relatively high compared with those of its counterparts, the Euro usually benefits because global investors find the region more attractive as a destination for their funds.

Economic releases: What moves the Euro?

By revealing the economy’s condition, data releases can move the Euro. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys can all shape the single currency’s direction. Economic strength supports the Euro by attracting foreign investment and potentially prompting the ECB to raise interest rates, which directly strengthens the currency. Weak economic readings, by contrast, are likely to push the Euro lower. Particular weight falls on releases from Germany, France, Italy and Spain, the euro area’s four largest economies. Together, they represent 75% of the Eurozone economy.

Trade Balance: Why does it matter for the Euro?

The Trade Balance is another release with an important bearing on the Euro. Over a specified period, it tracks the difference between a country’s export earnings and 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 its value. A positive net Trade Balance therefore supports a currency, while a negative balance has the opposite effect.

Below 1.1150: Euro stabilises as traders prepare for Fed rate decision

Euro rebound falters amid ECB caution and firm Fed expectations

Warsh highlights investment surge and AI demand risks without committing to policy path

100-day SMA caps EUR/USD: Technical outlook stays bearish