Above 1.1200: Euro edges higher despite French political unrest and fiscal concerns

• 1.1235 is the approximate level for EUR/USD as it posts a marginal gain in early Asian trading on Thursday.
• France’s deteriorating fiscal position and widespread anti-government demonstrations may put the Euro under selling pressure.
• A rate increase next week carries only a small probability in market pricing.

1.1235 is where EUR/USD trades with modest gains early in Thursday’s Asian session. Concerns about France’s political and fiscal prospects, however, may cap further advances in the major pair. Later in the day, European Central Bank (ECB) policymaker Fabio Panetta is due to speak.

5% was exceeded by French 10-year borrowing costs on Wednesday for the first time in 24 years. In the previous session, the benchmark 10-year bond yield gained more than 8 basis points (bps) to reach 5%, then eased to 4.99%. The bond, issued by the French Treasury, is known as obligation assimilables du Trésor (OAT).

Financial markets have been unsettled by political uncertainty and the government’s inability to reach agreement on a long-delayed budget. These concerns could weigh on the single currency in the near term. With the Yellow Vest movement submitting plans for a major march in Paris on Saturday, the government faces its next substantial test. French President Emmanuel Macron pledged to stop a recurrence of last weekend’s rioting and looting.

John Hardy, global head of macro strategy at Saxo in Copenhagen, said: "The French debt situation isn't tractable. They do need to go in and make proper adjustments on the fiscal side to get this debt level down to at least show the seriousness around the trajectory,"

In the US, the CME FedWatch tool shows that Fed funds traders assign only a slim probability to a Federal Reserve (Fed) rate increase next week. They expect the next rise in December. Nor is Fed Chairman Kevin Warsh likely to offer signals about subsequent policy moves.

EUR/USD stays resilient as energy and bond correlations weaken

The usual relationships linking EUR/USD with energy prices and bond yields have stopped behaving as they did earlier in the cycle, according to analysts at Societe Generale. Highlighting the pair’s unexpected resilience, they observe that “for EUR/USD, it’s curious that cycle highs in nat gas prices and bond jitters have not triggered another leg down in a way that would have occurred prior to October.” The analysts add that “the correlations have broken down over the past two weeks or so,” a shift that, in the bank’s view, “would suggest that most of the bad news is priced in or investors are not committed to putting on new directional trades, playing the ranges instead.”

5.6/10: Warsh weighs investment surge and AI risks as Fed retains year-end flexibility

At 5.6/10, Fed Chair Warsh’s FXS Speechtracker score was slightly below the established baseline of 6.1/10. His message was moderately constructive but cautious, and less emphatic than usual. Acknowledging that he is “over-scarred from the Global Financial Crisis” points to an enduring bias towards risk aversion. At the same time, Warsh highlights structural growth and a surge in investment supported by “good policies”. He identifies the forthcoming October and December meetings as the “crystalizing moment” for decisions concerning output, employment, and inflation. His emphasis on AI as a near-term demand shock, with uncertain consequences for employment, comes alongside plans for a field hearing and new Fed task forces. Together, these suggest an institution seeking to capture technological benefits while protecting against adverse tail outcomes and risks to financial stability.

At a hawkish 127.51, the FXS Fed Sentiment Index registered a 0.00-point change. Despite the slightly lower FXS Speechtracker score, the broader policy stance therefore remains well above the neutral 100 threshold. Taken together, the readings suggest markets should interpret Warsh’s comments as maintaining a high hurdle for easing. Optimism about investment and AI-led productivity remains balanced by the legacy of the financial crisis and a strong emphasis on price stability and tail risks.

100-day SMA caps EUR/USD: Technical outlook stays bearish

On the daily chart, trading below both the 100-day simple moving average (SMA) and the Bollinger middle band leaves EUR/USD with a bearish near-term bias. Consolidation is concentrated towards the lower half of the recent volatility envelope. Meanwhile, the Relative Strength Index (14), at roughly 41, remains under the neutral 50 threshold, suggesting selling pressure continues to dominate recovery efforts.

The Bollinger middle band around 1.1245 provides the first upside resistance. Any further advance would likely encounter supply near the upper Bollinger band at 1.1370, followed by the more significant 100-day SMA at 1.1455. Below current prices, the lower Bollinger band around 1.1120 marks the next major support. A decisive break there would leave scope for the broader decline to extend.

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