Euro gains capped by French debt concerns as Iran diplomacy hopes pressure USD

Prospects for diplomacy over Iran weigh on the USD, drawing buyers to EUR/USD on Monday.
Despite support for the Euro from the ECB’s hawkish stance, the advance struggles to gain momentum.
Final Eurozone PMIs are next on traders’ radar, followed by the US ISM PMI.

EUR/USD trades just above 1.1150. The pair posts a modest gain in Monday’s Asian session, but conflicting drivers leave the move without firm bullish conviction.

A December rate rise remains firmly on the table under the European Central Bank's (ECB) hawkish outlook, offering the single currency some support as surging energy costs heighten inflation risks. Diplomatic hopes in the Middle East also favour EUR/USD by weakening demand for the safe-haven US Dollar (USD). On Sunday, Iranian negotiators reportedly met Qatari mediators for a third successive day, seeking progress towards a deal to end the US-Israeli war on Iran. Iran has also put forward a two-day (48-hour) plan for reopening the Strait of Hormuz, conditional on the US fulfilling a series of requirements.

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

Although US President Donald Trump described talks with Tehran as productive, he left open the possibility of further military action after the November 3 midterm elections. Iran’s Supreme Leader, Mojtaba Khamenei, has meanwhile instructed senior military commanders to prepare for another confrontation with the US and Israel and broaden Tehran’s retaliation options. Fresh Ukrainian strikes on Russian oil refineries also sustain the geopolitical risk premium. Together with expectations of a US Federal Reserve (Fed) rate rise, these risks should support the Greenback and limit any substantial EUR/USD advance.

Around a 75% probability of another December increase in US borrowing costs is now priced in by traders, according to the CME Group's FedWatch Tool. Those expectations strengthened after Thursday’s US economic releases indicated continued resilience and persistent price pressures. EUR/USD may also face a ceiling from growing unease over France’s worsening debt position and political deadlock ahead of next year’s election. For near-term direction, traders await the final Manufacturing PMIs before the US ISM Manufacturing PMI. Friday’s US Nonfarm Payrolls (NFP) report, however, remains the market’s main focus.

EUR/USD: daily price chart

1.1104 Support in Focus as EUR/USD Remains Bearish

Trading firmly beneath the 50-day Simple Moving Average (SMA) at 1.1379, EUR/USD retains a bearish short-term bias. A dense cluster of overhead resistance also includes the 23.6% Fibonacci retracement at 1.1247 and the 38.2% retracement at 1.1336. Beyond these levels, the 50.0% retracement at 1.1408 presents another barrier. Further supply lies at 1.1480 (61.8%), 1.1582 (78.6%) and the cycle peak near 1.1712. Below current prices, the next significant support is the structural anchor around 1.1104. A test of that level could prompt buyers to try to slow the ongoing bearish sequence.

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

Euro: Key Questions

20 Countries, One Currency: The Euro

Used by the 20 European Union countries in the Eurozone, the Euro ranks second only to the US Dollar in global currency trading. Its share of all foreign exchange transactions stood at 31% in 2022, with average daily turnover exceeding $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%.

The ECB’s Role in Euro Pricing

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and directing monetary policy. Price stability is its core mandate, pursued by controlling inflation or encouraging growth. Interest rate increases and cuts are its main policy instrument. Higher rates, or expectations that rates will rise, generally support the Euro; the reverse also applies. Monetary policy is decided by the ECB Governing Council at eight meetings 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: Implications for the Euro

Measured through the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic indicator for the Euro. An unexpectedly strong rise in inflation, particularly above the ECB’s 2% target, requires the central bank to increase interest rates to restore control over prices. When interest rates are relatively high compared with those elsewhere, the Euro usually benefits. The higher returns make the region a more attractive destination for global investors’ funds.

Economic Indicators That Drive 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 all have the potential to shape the single currency’s direction. Economic strength supports the Euro both by drawing in more foreign investment and by potentially prompting the ECB to raise interest rates, which directly strengthens the currency. Weak economic figures, by contrast, are likely to weigh on the Euro. Germany, France, Italy and Spain merit particular attention. These four largest euro-area economies together represent 75% of the Eurozone’s economy, making their data especially important.

Trade Balance and the Euro’s Value

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