Euro Firms Near 1.1250 on ECB Tone and Election Jitters

Key Moments

Election Uncertainty Supports Euro Against the Dollar

The EUR/USD pair is edging higher in the early Asian session on Wednesday, trading close to 1.1240. Market participants are trimming exposure to the US Dollar (USD) as the unresolved outcome of the US midterm elections introduces additional uncertainty, lending support to the Euro (EUR).

Traders are closely monitoring the evolving vote count, with the results expected to shape the political backdrop for US President Donald Trump’s second term. The contest for control of Congress remains open, as several key races have yet to be resolved. Market attention is also turning to upcoming US September jobs data later in the week, adding another potential catalyst for the Dollar.

In the US House of Representatives, media outlets have called winners in roughly two dozen of the 435 seats, none of which are from closely fought races. In the Senate, Democrats have secured the first seven of the 35 seats contested on Tuesday, including a victory for US Senator Jon Ossoff in Georgia, according to US media projections. Despite these gains, the party still needs a net pickup of four seats to take control of the Senate.

ECB Hawkish Messaging Underpins the Single Currency

Hawkish rhetoric from European Central Bank (ECB) policymakers is providing an additional tailwind for the Euro. ECB Governing Council member Joachim Nagel stated on Tuesday that the central bank will probably move to increase borrowing costs next month in response to a deteriorating inflation outlook.

The ECB left its key rates unchanged last week after two increases since the start of the Iran war. Several officials have signaled that further tightening may still be necessary. According to the article, economists anticipate a final rate move next month, while market pricing points to the possibility that policy tightening could continue through 2027.

Scotiabank: December Hike Risk Keeps Euro Under Mild Pressure

Analysts at Scotiabank observe that the Euro is trading slightly weaker against the Dollar in relatively calm conditions, even as the ECB continues to deliver hawkish messages. They underscore remarks from ECB Governing Council member Radev, who emphasized that the October pause in rate hikes “does not mean that tightening is over,” thereby “keeping the door open for a December hike.” Scotiabank notes that “Dec OIS are pricing in 22bps of tightening risk,” highlighting that markets still see a meaningful probability of further ECB action.

Energy and Fiscal Backdrop Remain in Focus

On the commodities front, Scotiabank points out that “despite the drop in crude oil prices this week, the European energy focus remains on natgas/power where prices have eased but remain significantly above even the most pessimistic ECB forecasts.” Elevated natural gas and power prices continue to influence the Eurozone inflation environment, even as broader energy markets appear somewhat calmer.

From a fiscal perspective, Scotiabank flags that “France reported its September YTD budget balance of EUR159.2bn, in line with expectations,” indicating no significant surprise from one of the Eurozone’s core sovereign issuers.

Nagel’s Strong Hawkish Signal and Implications for the Euro

Joachim Nagel delivered a notably hawkish message, with his comments earning an 8.2/10 score on the FXS Speechtracker, above the historic average of 7/10. This reinforces expectations for tighter ECB policy. His explicit statement that “a rate hike in December is very likely to be necessary” and his warning that inflationary dynamics are moving closer to an adverse scenario underscore a clear bias toward additional tightening, which is broadly supportive for the Euro through rate differentials.

Nagel also stressed the importance of preventing any renewed surge in energy prices from spilling over into generalized inflation, while noting that France’s budget challenges fall outside the ECB’s remit and remain a fiscal matter. This focus on price stability, combined with confidence in fiscal containment, suggests little tolerance for upside inflation surprises. As a result, the odds of further hikes increase, helping the Euro maintain resilience against the Dollar and other major currencies.

Technical Outlook: EUR/USD Retains Bearish Bias Below 100-Day SMA

From a technical perspective, EUR/USD retains a bearish short-term tone on the daily chart, as spot remains capped below the 100-day Simple Moving Average (SMA). The pair is trading just above the 20-day Bollinger Bands middle line, indicating some underlying but fragile demand. The upper Bollinger band near 1.1254 represents immediate resistance.

On the upside, initial resistance is located around the Bollinger upper band near 1.1255, followed by the more significant barrier at the 100-day SMA around 1.1420, where sellers are expected to defend the prevailing downtrend. On the downside, the first notable support level coincides with the Bollinger middle band at 1.1195, with a stronger floor at the lower band near 1.1135. A daily close beneath this latter area would reinforce the bearish structure and open the door to additional downside.