Euro edges higher as Iran diplomacy hopes weigh on the USD; French debt worries cap gains

EUR/USD attracts some buyers on Monday as hopes of Iran diplomacy undermine the USD.
The ECB’s hawkish outlook also supports the Euro, though the uptick lacks follow-through.
Traders now look to the final Eurozone PMIs for some impetus ahead of the US ISM PMI.

The EUR/USD pair edges higher during the Asian session on Monday, though it lacks bullish conviction and currently trades just above 1.1150 amid a combination of diverging forces.

The shared currency draws some support from the European Central Bank's (ECB) hawkish outlook, signaling that a rate hike in December is firmly on the table as inflation risks were on the rise from surging energy costs. Moreover, hopes for Middle East diplomacy undermine the safe-haven US Dollar (USD) and act as a tailwind for the EUR/USD pair. In fact, Iranian negotiators reportedly held a third consecutive day of talks with Qatari mediators on Sunday to advance a deal to end the US-Israeli war on Iran. In further developments, Iran has proposed a two-day (48-hour) plan to reopen the Strait of Hormuz, contingent upon the US meeting a series of conditions.

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Meanwhile, US President Donald Trump said talks with Tehran have been productive, though he has not ruled out further military action after the November 3 midterm elections. Furthermore, Iran’s Supreme Leader, Mojtaba Khamenei, ordered his top military commanders to prepare for renewed confrontation with the US and Israel, and expand Tehran’s options for retaliation. Apart from this, fresh Ukrainian attacks on Russian oil refineries keep the geopolitical risk premium in play, which, along with US Federal Reserve (Fed) rate hike expectations, should act as a tailwind for the Greenback and cap any meaningful appreciating move for the EUR/USD pair.

According to the CME Group's FedWatch Tool, traders are now pricing in around a 75% chance that the US central bank will raise borrowing costs again in December. The bets were lifted by US macro data released on Thursday, which pointed to a still resilient economy and persistent price pressures. Moreover, mounting concerns about France’s deepening debt levels and political gridlock ahead of next year’s election might contribute to capping the EUR/USD pair. Traders now look to the final Manufacturing PMIs for some impetus ahead of the US ISM Manufacturing PMI, though the market focus will be on the US Nonfarm Payrolls (NFP) report on Friday.

EUR/USD daily chart

Technical Analysis

The EUR/USD pair maintains a bearish near-term tone as it holds decisively below the 50-day Simple Moving Average (SMA) at 1.1379 and the dense overhead confluence of the 23.6% Fibonacci retracement at 1.1247 and the 38.2% retracement at 1.1336. Above there, further resistance emerges at the 50.0% retracement at 1.1408, with additional supply zones at 1.1480 (61.8%), 1.1582 (78.6%), and the cycle high near 1.1712. On the downside, the next notable support is seen at the structural anchor around 1.1104, where buyers could attempt to slow the current bearish sequence if tested.

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

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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