The Euro gives back its bounce as French bonds sell off again

• EUR/USD gives back Tuesday's bounce and slips toward its 17-month low as French bonds sell off.
• Speculators held a record 301K short Euro contracts in the week to September 29.
• European gas storage at 71.5% full, against 82.6% a year earlier.

Banque de France Governor Moulin said on Wednesday that the strain in French bonds is serious but doesn't meet the conditions for help from the European Central Bank (ECB). French 10-year yields went back up after Tuesday's relief. EUR/USD trades just under 1.1200, having handed back all of Tuesday's rebound.

With no backstop on offer, the extra yield on French debt is a risk carried by every holder of Euro assets, and EUR/USD has moved with the French-German gap since late September. Governor Moulin, an ECB Governing Council member, said the ECB's job is inflation near 2% and that France can fix its own budget by holding the deficit to 5% of output. France is on course for 5.4% this year, so the remedy is a smaller version of the problem.

A record bet against the Euro that nets out to April 2025

Speculative traders held about 301K futures contracts betting on a weaker Euro in the week to September 29, the most on record in US regulators' data and worth about €38 billion. Netting off their bets on a rise leaves about 63K contracts short, the most since April 2025. Every one of those shorts has to be bought back to close, so a French budget deal or cheaper gas could lift EUR/USD faster than the news alone would.

Gas is the second half of the bet. European storage was 71.5% full on October 2 against 82.6% a year earlier. The Dutch benchmark price is about 120% higher than a year ago, so the region's energy import bill is rising, and paying it means selling Euros for other currencies. Europe goes into the heating season with less gas stored than a year ago and a weaker currency to buy the rest with.

The ECB's account arrives a full hike behind the market

The account of the ECB's September 10 meeting, which raised the deposit rate to 2.50%, is due on Thursday at 11:30 GMT, after ECB Chief Economist Lane speaks at 10:00 GMT. Money markets price about two and a half more hikes, down from three and a half at the end of September, after ECB President Lagarde said higher borrowing costs were already slowing the economy.

ECB Executive Board member Schnabel speaks on Friday at 13:30 GMT. An account or a speech that revives hike bets would narrow the rate gap with the Fed and lift EUR/USD.

US weekly jobless claims are due on Thursday at 12:30 GMT, forecast at 200K from 197K. Friday's University of Michigan (UoM) sentiment survey at 14:00 GMT is forecast at 47.6 from 48.1, in a series that never read below 50 before April and has done so four times since. EUR/USD is more than six cents below its April high, so American gloom has yet to cost the Dollar anything against the Euro.

Euro levels near the 17-month low

Upside: Wednesday's high, just above 1.1250, came in under Tuesday's, and no session since October 1 has reached 1.1300. 1.1350 caps the October 1 session that started the slide to the current lows.

Downside: Monday's low, just above 1.1150, is the lowest since May 2025, and Wednesday's low stopped just short of it. 1.1100 is the next round level below.

Bias: The lean stays short below 1.1300, with 1.1150 the first objective and 1.1100 after it. On the daily chart the Stochastic Relative Strength Index (Stoch RSI), under 20 since September 14, is near 5, so a squeeze toward 1.1300 as shorts are bought back wouldn't change the call. The call is wrong on a daily close above 1.1350.

EUR/USD daily chart