EUR/USD bottoming pattern takes shape with growth worries and French budget vote in view

USD:

The greenback has lately been under pressure, with Treasury yields falling sharply after last week's hotter-than-expected US inflation reading.

That response may look odd: higher inflation would normally be a case for higher rates, yet the market could be shifting toward growth worries.

Should activity slow, the Fed could find itself obliged to stay hawkish because inflation pressures are sticky. The result could be additional strain on growth, and ultimately rate cuts might become necessary.

Indeed, along the longer end of the curve, rate expectations moved a touch dovish: the cumulative tightening priced for end-2027 dropped to 70 bps from 80 bps, even with inflation running hot and no shift on the geopolitical front.

Should the market fix on growth risks, Friday's US Flash PMIs become an important test. Solid figures could calm those worries and support the dollar. A weak release, by contrast, would probably add to growth concerns, pressuring long-dated Treasury yields and the greenback further.

EUR:

For the euro, the odds of an ECB rate hike in October have fallen steeply after the bond market turbulence and the French-German spread widened to its most extreme since the European debt crisis.

Markets continue to price a December ECB hike, assigning it an 87% probability, because high energy costs keep inflation risks tilted upward. Further out, two more hikes are seen next year, with rate cuts arriving in 2028.

The single currency is apt to stay responsive to bond-market events, above all the French-German spread. A crucial French budget vote takes place tomorrow. Following parliamentary questions, the National Assembly is due to vote formally on the first segment of the budget bill, which concerns government revenues. The complete budget vote is set for November 17.

The vote serves as a gauge of whether the government can push through fiscal consolidation. A clean approval would bring some comfort and lift the euro; a defeat, or major concessions that dilute the deficit-reduction plan, could put further pressure on French bonds and the euro.

EURUSD technical analysis – daily timeframe

The daily chart shows EURUSD has been building a base, though the downside is still a threat. Another move lower could bring buyers in near 1.1067, using a stop below that level to position for a bounce toward the descending trendline around 1.15. Sellers, meanwhile, will be watching for a breakdown to add to short positions with a push toward 1.08 next.

EURUSD technical analysis – 4 hour timeframe

On the four-hour chart, a sturdy resistance zone sits near 1.1275, an area that has repelled price repeatedly over the last two weeks. A fresh test of that resistance could attract sellers, who can set a stop above it and aim for a decline to new lows, with 1.1067 as the first objective. Buyers, on the other hand, are eyeing a breakout to load up for a move toward 1.15.

EURUSD technical analysis – 1 hour timeframe

The one-hour chart shows a minor descending trendline that has shaped the ongoing pullback from resistance. Sellers are likely to keep pressing against that line, with a stop positioned above it, in search of fresh lows. Buyers, meanwhile, want a move higher to begin building positions for a resistance breakout.

Upcoming catalysts

France's budget vote is on tomorrow's agenda. Thursday brings the latest US Jobless Claims numbers. The week wraps up on Friday with flash PMI readings from the Eurozone and the US.