Euro gains above 1.1150 on stronger-than-forecast Eurozone GDP as US midterm election approaches

EUR/USD gains ground towards 1.1175 as Monday’s European session gets under way.
The Euro’s gains could be constrained by Fitch’s downgrade of France’s outlook from "stable" to "negative".
Tuesday brings Americans to the ballot box.

EUR/USD advances towards 1.1175 in early European trade on Monday, with the Euro (EUR) gaining modestly against the US Dollar (USD). Providing support, third-quarter (Q3) Gross Domestic Product (GDP) figures for both the Eurozone and Germany exceeded forecasts. Attention now turns to Germany’s Retail Sales and the US ISM Manufacturing Purchasing Managers Index (PMI), due later on Monday.

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

Resilience in the face of the Middle East war and sharply higher energy costs was evident in Friday’s stronger-than-forecast Eurozone growth figures. GDP increased by 0.4% QoQ in Q3, outpacing expectations of 0.2%, though slowing from the 0.6% expansion recorded in Q2.

Germany also exceeded market expectations, posting Q3 growth of 0.2% QoQ against a consensus forecast of 0.1%. Its economy had expanded by 0.3% in Q2.

A potential near-term drag on the single currency, however, comes from France. On Friday, credit ratings agency Fitch changed the country’s outlook from "stable" to "negative", warning that deteriorating public finances and political risks were weakening the prospects for debt stabilisation.

Control of Congress is at stake when Americans vote on Tuesday, with the Democratic Party seeking to wrest it from US President Donald Trump’s Republican Party. Democrats are expected to win a majority in the House of Representatives, but the Senate contest’s outcome is still uncertain.

Can limited ECB-Fed divergence support the Euro as French risks constrain EUR/USD?

A December rate increase remains a strong possibility, according to Brown Brothers Harriman’s Elias Haddad, who points out that “resilient Eurozone economic activity and inflation projected to remain above target for an extended period keep a December rate hike to 2.75% firmly in play (86% priced in).” Highlighting underlying regional resilience despite areas of weakness, he adds that “real GDP rose 0.4% q/q in Q3 vs. 0.6% in Q2, double the consensus forecast, as growth in Spain and Germany offset France’s contraction,”

For Haddad, the prevailing interest-rate outlook provides a cushion for the Euro: the “bottom line: limited policy divergence between the ECB and Fed offers EUR/USD support,” he argues. Nevertheless, risks specific to France could still pressure the currency. He warns that “France’s ongoing fiscal troubles can drive EUR/USD down to 1.1000,”

Turning to institutional developments, BBH emphasises that “the ECB leadership change is unlikely to alter the near-term policy outlook and has no material implication on EUR. The ECB Governing Council is not a one-person show; 21 members have voting rights, including six Executive Board members and 15 governors of the national central banks.” A meeting of EU leaders on November 26-27 is scheduled “to discuss who will take over the ECB’s top job,” while “Spain’s Pablo Hernandez de Cos and the Netherlands’ Klaas Knot” are reported to be leading the race to succeed the current president.

Could Nagel’s renewed inflation warning lend support to Euro bulls?

A distinctly hawkish shift emerges from ECB’s Nagel’s latest inflation warning, which is stronger than usual. His FXS Speechtracker score stands at 8.2, compared with a historic average of 6.9. By pledging “decisive action if needed” to return inflation to target, the ECB reinforces expectations that further policy tightening remains a firm option should price pressures accelerate again.

Higher energy costs underpin Nagel’s warning that consumer-price growth has accelerated again and that further price rises “can’t be ruled out,” reinforcing a more watchful approach to inflation risks. For the Euro, renewed concern over inflation alongside a willingness to respond provides support: markets may assign a greater probability to further restrictive measures if data keep exceeding expectations.

Technical Analysis: Can EUR/USD shake off its bearish bias below the 100-day SMA?

Trading below the 100-day simple moving average (SMA) leaves EUR/USD with a bearish near-term outlook on the daily chart. The pair also remains beneath the Bollinger Bands’ 20-period middle SMA, placing it in the lower half of its recent volatility range. Meanwhile, a Relative Strength Index (14) reading around 40 points to downside momentum that is weak but stabilising, rather than to outright oversold conditions.

The Bollinger middle band at 1.1195 marks the first upside hurdle, followed by the upper Bollinger band near 1.1260. A stronger resistance level lies at the 100-day SMA of 1.1425. Below current prices, the lower Bollinger band at 1.1130 provides the next significant support. A decisive breach of that level would clear the way for fresh lows within the existing bearish structure.

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

Euro: Frequently Asked Questions

Which countries use the Euro, and how widely is it traded?

Used by the 20 European Union countries that make up 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 was 31% in 2022, with average daily turnover exceeding $2.2 trillion. The world’s most actively traded currency pair is EUR/USD, which represents an estimated 30% of all transactions. Next come EUR/JPY at 4%, EUR/GBP at 3% and EUR/AUD at 2%.

What role does the ECB play in determining the Euro’s value?

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 central mandate, whether through containing inflation or encouraging growth. Interest-rate increases and cuts are its principal policy instruments. Higher relative interest rates, or expectations of an increase, generally support the Euro; lower rates tend to have the opposite effect. 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 central banks and six permanent members, among them ECB President Christine Lagarde.

Why do inflation figures matter for the Euro?

An important economic measure for the Euro is Eurozone inflation, tracked through the Harmonised Index of Consumer Prices (HICP). A stronger-than-expected rise in inflation, particularly beyond the ECB’s 2% target, requires the central bank to increase interest rates to bring price pressures under control. When interest rates are relatively higher than those of its counterparts, the Euro usually benefits because the region becomes a more attractive destination for global investors’ funds.

Why does the Euro respond to economic data releases?

By revealing the economy’s health, data releases can move the Euro. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that can shape the single currency’s direction. Economic strength supports the Euro by drawing in foreign investment and potentially prompting the ECB to raise interest rates, which directly strengthens the currency. Conversely, weak economic readings are likely to push the Euro lower. Particular attention is paid to figures from Germany, France, Italy and Spain, the euro area’s four largest economies. Together, they represent 75% of the Eurozone economy.

Why is the Trade Balance important for the Euro?

The Trade Balance is another key release for the Euro, showing the gap between a country’s export earnings and its expenditure on imports over a specified period. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods, lifting the currency’s value. A positive net Trade Balance therefore strengthens a currency, while a negative balance has the reverse effect.