Euro Rises as Markets Weigh French Turmoil and Fed Signals

Key Moments

Euro Holds Firm Despite French Unrest

The EUR/USD pair traded in positive territory around 1.1215 during Tuesday’s early European session, extending gains from earlier in the day. The upside appeared constrained as market participants assessed the implications of violent protests in France and a deteriorating fiscal outlook for the country. Investors also looked ahead to the release of the German ZEW Survey and US ADP employment data scheduled for later on Tuesday.

According to a BBC report on Monday, French authorities introduced overnight curfews in parts of central Paris and several other cities following a weekend marked by riots and looting. French Prime Minister Sébastien Lecornu stated that he was “fully resolved to restore public order” and had called for “local and partial” curfews if needed. There was “no question” of imposing a full curfew on entire cities, he said.

These measures offered only limited support to the Euro. Market participants continued to monitor developments around France’s fiscal position and political backdrop, with any further deterioration seen as a potential drag on EUR/USD.

French Spreads Widen as Risk Premium Rises

The strain on French assets was evident in sovereign debt markets. The yield spread between French government bonds and German Bunds widened to 147 basis points, compared with approximately 110 basis points in late September. The current level was described as comparable to that seen during the 2011-2012 European debt crisis.

Fed Outlook: Data-Dependent and Cautious

Across the Atlantic, commentary from Fed Chair Kevin Warsh last week underscored confidence in the resilience of the US economy, while avoiding any firm indication on the timing or likelihood of additional rate increases. Market pricing in fed funds futures suggested that traders anticipated the Federal Reserve would keep rates unchanged at its October meeting, while assigning an 82.8% probability to a rate hike in December, based on the CME FedWatch tool.

Scotiabank: Euro Lagging Amid Protests and Geopolitics

Strategists at Scotiabank observed that the Euro was trailing other major currencies as domestic and geopolitical risks weighed on sentiment. They emphasized that “the EUR is underperforming following widespread and violent protests across France against poor conditions in schools and hospitals and broader concerns about affordability.”

The strategists added that political uncertainty was directly affecting local asset performance, stating that “French stocks and bonds underperforming and bond spreads versus Germany have widened to 145bps, sitting at the top of the (recent) historic range.”

They also pointed to broader geopolitical tension, noting that risk appetite had been dampened after “President Zelenskyy said the US is pushing Ukraine, not Russia to concede, adding to geopolitical concerns,” which they argued was reinforcing a more challenging backdrop for the Euro complex.

Warsh Remarks: Investment Strength and AI Risks in Focus

Warsh’s latest speech was assessed as moderately cautious by the FXS Speechtracker, which assigned it a score of 5.6/10, below the historical average of 6.1/10. The speech combined upbeat references to structural growth and an investment boom with a cautious policy tone.

His comment about being “over-scarred from the global financial crisis” highlighted what was described as a sustained risk-averse stance, even as he underlined strong investment activity supported by policy. Warsh refrained from committing to any specific direction ahead of the October and December Federal Reserve meetings, leaving market participants focused on incoming data and potential “crystalizing” decisions later in the year.

He also underscored the role of artificial intelligence as a driver on the demand side and referenced tail-risk management considerations. This focus introduced a financial-stability dimension that tempered the immediate hawkish interpretation of his remarks.

The FXS Fed Sentiment Index remained unchanged, moving 0.00 points to a still-elevated 127.51. This indicated that, in aggregate, the policy narrative continued to lean hawkish, even as the speech’s FXS Speechtracker score softened. For currency markets, the combination of a high Fed Sentiment Index and a non-committal tone suggested that the US Dollar stayed supported by expectations of ongoing vigilance regarding inflation and financial stability, despite the absence of explicit guidance on the path for 2026 meetings.

EUR/USD Technical Picture: Bearish Bias Persists

On the technical front, EUR/USD continued to exhibit a negative short-term profile on the daily chart. The spot rate remained below the 100-day simple moving average and the 20-period middle line of the Bollinger Bands, signaling ongoing downside pressure. The pair also faced resistance from the upper Bollinger Band.

The Relative Strength Index stood at 38, indicating weak but stabilizing bearish momentum after exiting oversold conditions.

On the upside, the first notable resistance zone appeared around the Bollinger middle band near 1.1260, followed by the upper band near 1.1410 and the 100-day simple moving average at 1.1462. On the downside, support was identified at the lower Bollinger band at 1.1110. A decisive break below this level could pave the way for a deeper decline, while a sustained hold above would likely keep the pair trading in a consolidation pattern within the broader bearish setup.