Euro advances as demand for French bonds recovers, with attention on ECB-Fed policy

• Broad-based Euro strength lifts EUR/USD towards 1.1210.
• Defying downgrade expectations, Moody’s retained France's Aa3 sovereign rating.
• Interest rates are expected to remain unchanged at this week's Fed and ECB meetings.

Gains against its peers mark the Euro's (EUR) trading on Monday. During the European session, it holds slightly firmer against the US Dollar at around 1.1210, although some of the initial advance has faded.

Why is the Euro finding support?

Buying interest in the Euro follows Moody’s decision to retain France's sovereign rating at Aa3 rather than deliver the downgrade that had been expected.

According to analysts at Danske Bank, the decision by Moody's late on Friday to retain France's Aa3 sovereign rating and negative outlook contradicted "wide market expectations of a downgrade." The analysts say the agency's position is based on the assumption "that a deficit-reducing 2027 budget will be adopted and that financing costs and social tensions will abate somewhat in the coming months."

As Danske Bank notes, Moody's now "expects a deficit of 5.2% of GDP next year, down from the 5.4% the government expects this year but slightly above its 5% target."

Although Moody’s retained the Aa3 sovereign rating, it cautioned that social unrest "could constrain fiscal consolidation efforts," while unrest persisted over the weekend, though more calmly than a week earlier. Unions have already called a nationwide strike for 5 November.

Attention on monetary policy now turns to Wednesday's announcement from the Federal Reserve (Fed), followed by the European Central Bank (ECB) on Thursday.

With both central banks expected to keep interest rates at existing levels, market participants will scrutinise their policy guidance. They will also focus on comments about whether energy supply shocks have begun feeding through to wages and wider consumer prices.

Meanwhile, Germany's IFO Institute Business Climate Index delivered an unexpected improvement in sentiment. The index rose to 90.2 in October from September's 89.9, against expectations of a decline to 89.8.

EUR/USD Technical Analysis: Can The Pair Reclaim Its EMA?

A near-term bearish bias persists on the daily chart, with EUR/USD trading around 1.1212, below the 20-period exponential moving average (EMA) of 1.1254. Failure to regain this dynamic resistance suggests that recent declines continue to weigh on the pair. At about 39, the Relative Strength Index (RSI) also remains below the neutral 50 mark, indicating that recovery efforts are modest within a generally weak trend.

For downside pressure to ease and a more constructive corrective phase to become possible, EUR/USD would need a sustained move above immediate resistance at the 20-day EMA near 1.1254. In the meantime, with no nearby support levels mapped in the dataset, recent lows serve as an informal floor. Trading below the cited moving average is likely to leave the pair exposed to further declines.

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