EUR/USD: hit from three sides, and where the euro can find a floor

The euro was at 1.1206 when I took this chart on Monday. It was 1.1650 at the start of September. That’s more than 400 pips in six weeks, and earlier this month it printed a 17 month low at 1.1115.

This isn’t one story. It’s three, and they’re all pushing the same way.

France: the streets and the bond market

Weeks of unrest that started as school protests in late September have led to thousands of arrests across the country. At the same time the bond market is losing patience. The gap between French and German 10 year yields hit around 147 basis points on 5 October, the widest since the 2011 debt crisis. France now pays more to borrow than Italy or Greece.

Debt is near 119% of GDP and the deficit is still above 5%. France has had four prime ministers since the 2024 snap election, and with the race to replace Macron next spring, nobody is pricing a fix. When investors want out of France, they can’t sell a French currency. They sell the euro.

Germany: the anchor is wobbling

The AfD now leads Merz’s CDU/CSU in national polls, 27% to 24% in the latest INSA poll, the widest gap they’ve recorded. The euro’s anchor economy has a government that is losing ground.

The dollar: money follows the yield

The Fed raised rates in September and US 10 year yields are above 5%. The ECB sits at 2.50%. That gap still favours the dollar.

The dates that matter

Tuesday 20 October: the French Assembly votes on the first part of the 2027 budget.
Friday 23 October: Moody’s reviews France’s rating.
27 October: vote on the social security budget.
28 October: Fed decision.
29 October: ECB decision.

The levels I’m watching

Resistance: 1.1250 to 1.1270, then 1.1310 to 1.1325, the old low that’s now a ceiling.
Support: 1.1115, this month’s low, then 1.1100. Below that the big one is 1.1000.

At the pace of the last six weeks, around 75 pips a week, 1.1100 is one to two weeks away if sellers stay in control, and 1.1000 two to four. But the daily RSI has been deeply oversold this month, so sharp bounces are part of this trend, not the end of it. A failed budget vote or a Moody’s downgrade is the kind of news that breaks 1.1115.

What most traders miss on a move like this

The cost of holding it. With US rates above European rates, a short euro position can earn overnight swap at many brokers, while a long position pays it every night, triple on Wednesday. And every lot costs you spread and commission whether you win or lose.

Check your broker’s swap table before you hold a trade over the week. If you’re trading this move anyway, register with Kyri Wealth and get cashback on every lot you trade.

Sources

• BabyPips: why the OAT/Bund spread matters for the euro
• StockWireX: French bond spread at a 2011 high
• Option Finance: French sovereign risk back to debt crisis levels
• AfD widens lead over Merz’s conservatives
• DailyForex: EUR/USD October outlook

Market analysis only, not financial advice. Trading CFDs carries a high risk of losing money.