• EUR/USD kicks off the new week on a weaker note amid concerns about France’s debt crisis.
• Geopolitical uncertainties and Fed hike bets revive USD demand, further weighing on the pair.
• The lack of follow-through selling warrants some caution before placing aggressive bearish bets.

The EUR/USD pair struggles to capitalize on a modest intraday bounce from the 1.1185 area and retains a mildly negative bias through the early European session on Monday. Spot prices, however, hold above the May 2025 low, touched last Wednesday, though the fundamental backdrop suggests that the path of least resistance remains to the downside.

Investors remain focused on France's fiscal position as the government struggles to pass a deficit-reducing budget ahead of upcoming elections, pushing the spread between French and German 10-year government bonds to the highest level since the 2011 Eurozone debt crisis. This, along with violent civil unrest in France, rattles European financial markets and exerts some pressure on the Euro. Apart from this, a modest pickup in the US Dollar (USD) demand turns out to be another factor acting as a headwind for the EUR/USD pair.

US Federal Reserve (Fed) Chair Kevin Warsh’s unwillingness to provide any cues on further policy moves led to a reduction in odds for policy tightening later this month. However, hotter-than-expected US inflation figures released last week underpin prospects for an imminent rate hike by the end of this year. Apart from this, persistent geopolitical risks stemming from escalating tensions in the Middle East and the US-Iran standoff over the Strait of Hormuz assist the safe-haven USD to build on Friday's bounce from a two-week low.

This, in turn, validates the near-term negative outlook for the EUR/USD pair, though the lack of follow-through selling warrants some caution for bearish traders. Hence, it will be prudent to wait for a daily close below the 1.1150 horizontal support before positioning for an extension of the recent well-established downtrend witnessed over the past two months or so.

EUR/USD 4-hour chart

Technical Analysis

The EUR/USD pair keeps a bearish short-term bias following Friday's failure near 1.1270-1.1275 horizontal barrier. On the downside, initial support is located around mid-1.1100s, and a sustained break below this level would expose a deeper pullback. On the flip side, spot prices would need to move above the 1.1270-1.1275 hurdle to back the case for any meaningful upside.

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

Euro FAQs

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%).

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.

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.

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.

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.

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.