Euro appears vulnerable near yearly low as attention turns to Fed-ECB policy

• With its yearly low of 1.1113 close by, the Euro remains vulnerable against the US Dollar as the Fed’s policy decision approaches.
• French fiscal concerns and elevated oil prices maintain pressure on the Euro.
• Interest rates are expected to remain unchanged at both the Fed and the ECB.

The yearly low of 1.1113 remains within reach as the Euro (EUR) trades against the US Dollar (USD) in Wednesday’s European session. Rising oil prices and mounting unease in French bond markets are weighing on the Euro, keeping the major currency pair under pressure.

Euro remains under pressure as French spreads widen and confidence returns to 2022 lows

French markets are showing increasing signs of domestic political strain, according to Scotiabank strategists, who note that “French bonds … underperforming, nudging the spread over 10Y bunds back up to 161bps.” To illustrate the sharp deterioration in sentiment, they add: “French Consumer Confidence plunged to 80 in October, equaling the low seen in 2022, reflecting recent pollical tensions and social unrest.”

Concerns over further risks to energy supplies have also driven oil prices higher at a faster pace, following a drone attack by Iran-backed Houthis on Saudi Arabia’s largest oil facility.

A military spokesperson for the Iran-aligned Houthis said on Tuesday that the group had struck Saudi Arabia’s largest oil refinery with a missile, stepping up attacks against the world’s second-largest crude producer. According to Reuters, Saudi authorities did not immediately confirm the attack on the facility, which has a capacity of 550,000 barrels per day.

For the Euro, the next key catalysts are Thursday’s monetary policy announcement from the European Central Bank and Friday’s preliminary German Harmonised Index of Consumer Prices (HICP) figures for October. Expectations are for the ECB to leave interest rates unchanged.

For the US Dollar, attention centres on the Federal Reserve’s (Fed) monetary policy announcement, due at 18:00 GMT.

Fed takes centre stage as Danske Bank anticipates December and March rate rises

In their assessment of the US outlook, Danske Bank analysts say “the main event of the week is this evening's FOMC rate decision and the following press conference,” adding that they “expect the Fed to keep policy rates unchanged, in line with consensus, while markets price in a 10% probability of a hike.”

Explaining their view, the analysts say “most central FOMC members have signalled that they can wait until December before hiking again, although a few see more urgency,” leading them to “expect 2-3 dissenting votes in favour of a hike.”

Danske Bank maintains that it “still see[s] a need for further tightening”, while noting that “all eyes are on Fed, which are expected to leave rates unchanged.” The bank’s base case is for Chair Powell “to reiterate his firm commitment to bringing inflation back to target,” and its forecast remains for “two more hikes, in December and March.”

EUR/USD Technical Outlook Remains Bearish

At 1.1126 on the daily chart, EUR/USD retains a bearish bias below its 20-day exponential moving average (EMA) of 1.1228. This dynamic resistance continues to constrain the pair. A Relative Strength Index (RSI) reading near 30 also indicates that downward momentum remains dominant, although the approach towards oversold territory could temper near-term selling rather than bring about a trend reversal.

A daily close above the 20-day EMA, the first resistance around 1.1228, would be required to relieve the prevailing bearish pressure and indicate a more lasting corrective recovery. Before that level is regained, advances are likely to be regarded as corrections within the wider downtrend. With no nearby structural support evident on the chart, renewed selling momentum would leave the pair exposed to fresh lows.

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