Euro holds near lows as traders weigh French budget and US inflation data

The greenback has found support lately even as Fed officials Williams and Jefferson drove a dovish repricing when they pushed back against bets on an October rate increase.

Risk-off demand for the dollar, driven by European debt worries, has been the main factor. France has drawn particular attention: political instability and worries about the nation's hefty budget shortfall have lifted French government bond yields lately and pushed the gap over German Bunds to its widest since the eurozone debt crisis.

Should French spreads settle, part of the euro's risk premium could fade and prompt a dollar retreat; more widening or contagion elsewhere, by contrast, would probably keep the greenback underpinned.

Talks between the US and Iran are still deadlocked, though last week Trump did rule out fresh strikes before the November elections. This week's US CPI release is also on the calendar and has the potential to produce large market swings.

An above-consensus core CPI reading could revive the prospect of an October rate increase and lift the dollar. A weak report, on the other hand, would probably hurt the currency in the near term as Treasury yields decline.

Across the Atlantic, chances of an ECB rate rise in October have diminished after the sharp move wider in the French-German bond spread, with policymakers expected to stay wary of putting more strain on already vulnerable markets.

That said, a December ECB move is still priced in, a sign of lingering inflation pressure from elevated energy costs. On the data front, euro-area CPI showed headline inflation jump to 3.8% in September from 3.2% in August, much of it tied to energy. Core inflation was more restrained, inching up to 2.5% from 2.4%.

Going forward, energy costs and Middle East events are set to keep shaping the inflation picture. A lasting drop in energy prices would ease some near-term price pressures and hand the ECB more scope to postpone additional tightening. That would be euro-positive too, via firmer risk sentiment and reduced expectations of a Fed hike.

The single currency will also keep reacting to bond-market moves, especially the French-German spread. Paris has put forward a 2027 budget aiming for a deficit of 5.0% of GDP, backed by spending discipline and greater tax receipts. That is down from the earlier 5.4% and has eased some market anxiety. Still, the proposal has parliamentary obstacles ahead, and eurozone finance ministers along with the ECB have pressed France to deliver a credible budget and rebuild market confidence.

Market participants will stay focused on France, where positive progress would support the euro and adverse developments would probably keep pressuring the currency.

EURUSD technical analysis – daily timeframe

EURUSD has sold off heavily over the past few weeks as France's debt troubles weighed. The nearest notable support is at 1.1067. If price reaches that level, buyers would likely step in with defined risk below it, positioning for a rebound toward the major descending trendline. Sellers, on the other hand, would prefer to see a move below that support to add to bearish bets and target the 1.08 handle next.

EURUSD technical analysis – 4 hour timeframe

A descending trendline has been defining the selloff since early September. Sellers are likely to keep using that line as resistance, with risk above it, while pressing toward fresh lows. Buyers, conversely, will want a break above it to begin positioning for a climb toward the major downward trendline, with 1.1285 as the initial target.

EURUSD technical analysis – 1 hour timeframe

The pair has been forming a base since France cut its proposed 2027 budget deficit to 5.0% from 5.4%. A support zone sits near 1.1160. Buyers are expected to keep defending that area with risk below it, aiming for a break above the trendline and fresh highs. Sellers will be looking for a drop through support to expand bearish positions toward new lows.

Upcoming catalysts

Wednesday brings the US CPI report. Thursday sees the US PPI, retail sales and the latest jobless claims figures.