Key Moments
- EUR/USD traded around 1.1125 during early Asian hours on Wednesday, with participants reluctant to add risk ahead of the Federal Reserve decision.
- Futures pricing showed a 92.8% probability that the Fed would leave rates unchanged in October, with an 84.4% chance of a hike in December.
- EUR/USD technicals remain bearish, with the pair trading below key moving averages and the RSI near oversold territory at 30.3.
Fed and ECB Meetings Anchor FX Market Focus
The EUR/USD pair was little changed near 1.1125 in the early Asian session on Wednesday, as traders opted to reduce activity before the latest Federal Reserve policy announcement. Market attention is centered on the Fed’s interest rate decision on Wednesday, followed by the European Central Bank’s policy meeting on Thursday.
Expectations point to the Fed maintaining its benchmark rate within the existing target band of 3.75% to 4.0%. Market participants are poised to scrutinize any indications Fed Chair Kevin Warsh may offer about the policy outlook.
According to the CME FedWatch tool, derivatives markets were pricing in a 92.8% likelihood that the US central bank would leave rates unchanged at its October meeting. The implied probability of another rate increase in December stood at 84.4%.
Bank of America analysts, led by Mark Cabana, commented that “USD risks skew lower on a hold: hawkish messaging is broadly neutral, while a dovish hold risks outsized USD weakness.”
Euro Underperforms as Regional Risks Weigh
On the European side, the Euro was heading toward being the weakest performer among developed-market currencies in October, with a 1.70% loss versus the US Dollar. Elevated energy prices, turbulence in French government bond markets, and ongoing questions surrounding France’s fiscal trajectory were highlighted as potential headwinds for the common currency in the near term.
The ECB is expected to keep its key interest rates unchanged at its upcoming Thursday meeting, after having delivered a 25 basis point rate increase in September.
Strategist Views on Euro and Policy Divergence
Strategists at Societe Generale observed that the Euro “really hasn’t been able to manage much of a bounce, regardless of shorts,” citing “energy prices, fiscal concerns and social unrest” as persistent drags on the currency. They further noted that “if the FOMC message (whatever that looks like in the brave new world) keeps December hike expectations alive, our bias is to remain dollar-positive, and unless the ECB is very hawkish, European economic fundamentals will weigh.”
Warsh Speech Reinforces Hawkish Bias Without New Catalyst
Fed Chair Warsh delivered remarks that were assessed as moderately constructive but less forceful than prior communications. The FXS Speechtracker assigned a score of 5.6/10, below the 6.1/10 baseline. Warsh’s acknowledgment of being “over-scarred from the global financial crisis” pointed to a cautious stance on financial stability. At the same time, he emphasized structural growth dynamics and a rise in investment, suggesting a vigilant but non-committal policy posture rather than a clear pivot in either a hawkish or dovish direction.
Warsh stressed avoiding any pre-commitment regarding future meetings and underlined the uncertain short-term implications of artificial intelligence for employment, signaling a data-dependent approach and reluctance to outline a predetermined policy trajectory.
The FXS Fed Sentiment Index was unchanged, with a 0.00-point move leaving the gauge at a firmly hawkish 127.51. This indicated that the speech aligned with existing expectations and did not materially alter the policy narrative. Combined with the mid-range FXS Speechtracker score, the steady Fed Sentiment Index suggested that markets viewed Warsh’s comments as affirming the current hawkish tilt without prompting significant revaluation of the US Dollar.
EUR/USD Technical Picture: Bearish Tone Persists
On the daily chart, EUR/USD continued to face selling pressure, trading below the 20-day simple moving average from the Bollinger Bands and well under the 100-day moving average. Together, these levels form a solid ceiling on the upside. The spot rate was positioned just beneath the lower Bollinger Band, underscoring a persistent downside inclination.
The Relative Strength Index stood at 30.3, hovering near oversold conditions. This configuration implies that sellers remain in control, though the pair may be susceptible to intermittent corrective rebounds.
| Technical Level / Indicator | Reading / Approximate Level | Implication |
|---|---|---|
| Spot price | Around 1.1125 | Trading near recent lows, under key averages |
| Lower Bollinger Band (resistance on rebound) | Around 1.1130 | Initial resistance level |
| Bollinger mid-line | Near 1.1205 | Secondary resistance area |
| Upper Bollinger Band | About 1.1280 | Further upside barrier |
| 100-day moving average | Around 1.1440 | Key strategic resistance |
| RSI | 30.3 | Near oversold, bearish but prone to short squeezes |
On the upside, immediate resistance is seen near the lower Bollinger Band around 1.1130, followed by the mid-line close to 1.1205 and the upper band near 1.1280. A more significant resistance zone is located at the 100-day moving average around 1.1440.
The current indicator set does not define clear support levels below the prevailing market price, leaving the pair exposed to potential new lows if selling resumes. A move back above the 20-day simple moving average would be required to start alleviating the entrenched bearish bias.
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