EUR/USD, FTSE 100 Forecast: Two trades to watch

EUR/USD falls post-Fed and ahead of the ECB rate decision

EUR/USD trades under pressure after the Federal Reserve left interest rates unchanged, as attention turns to the ECB rate decision.

The U.S. dollar initially fell following the Federal Reserve rate decision, where the central bank left rates unchanged at 3.75%–4%, in line with expectations. Federal Reserve Chair Kevin Warsh slightly muddied the outlook for further rate hikes in his post-decision comments, suggesting that the Fed could bring inflation back to the 2% target without significantly impacting growth or the jobs market.

As a result, the market slightly reined in Fed rate hike expectations for 2027, and the probability of a December rate hike was lowered to 81% from 84%.

Still, the U.S. dollar is recovering those losses amid safe-haven flows as U.S. equities sink following disappointing numbers from Alphabet.

Attention also turns to U.S. core PCE and Q3 GDP data, which, if stronger than expected, could reverse the market reaction to the Fed decision.

Attention will also be on the ECB, which is expected to leave interest rates unchanged, with the deposit rate at 2.5%.

With inflation at 3.8%, core inflation rising to 2.5% and energy inflation jumping to 18.9%, a December rate hike remains very much on the table.

Brent has risen 13% over October, and the European natural gas benchmark has surged by 25%, keeping inflationary pressures persistent.

However, the ECB meeting also comes against a backdrop of fiscal and political crisis in France, which has triggered turmoil in European bond markets.

The French 10-year bond yield rose above 5.1%, a 24-year high, last week. Higher yields tighten financial conditions, raising borrowing costs and cooling the economy. In other words, they reduce the need for aggressive ECB hikes.

The current backdrop still justifies further hikes. However, the surge in bond yields on the back of the French crisis means that financial conditions have already tightened.

Should the ECB president acknowledge this, it could pull the euro lower.

EUR/USD forecast – technical analysis

EUR/USD trades below its 50 and 200 EMAs, as well as the descending trendline, hovering around 1.1140 near its lowest levels of 2026. The technical outlook remains bearish, with sellers continuing to dominate.

On the downside, sellers will look for a break below 1.1110, the 18-month low, to extend the bearish trend and bring the psychological 1.1000 level into focus.

On the upside, any recovery could encounter initial resistance around 1.1200, followed by horizontal resistance at 1.1240. A sustained move above this zone would help ease immediate downside pressure and expose the 50 EMA around 1.1340, ahead of the broader resistance zone at 1.1350.

FTSE 100 rises post Budget led by defence and energy

As the dust settles on the Chancellor's Budget, the FTSE has opened higher, with defence shares and the energy sector leading gains.

John Healey announced his Budget yesterday, sticking to the fiscal rules and keeping the gilt market in check. There were no major tax hikes or huge spending announcements to unnerve the market.

As a result, gilt yields rose modestly, and the pound recovered slightly.

The markets broadly looked past the growth downgrade for 2027. The OBR now sees GDP growth of just 1% next year, while inflation is expected to remain above the Bank of England's target until 2028.

Instead, the bigger moves were seen within the FTSE. Defence and aerospace shares are leading gains, with BAE Systems up 2.1% and Melrose Industries up 2%, after the government said it would fully fund its £15 billion defence investment plan through reprioritisation of public spending.

Banks gained yesterday after Chancellor John Healey increased the bank surcharge from 3% to 6% for 15 months. This was a smaller rise than some had feared. However, banks are under pressure today.

Also on the earnings front, Lloyds posted a 42% jump in nine-month profit to £6.6 billion, up from £4.7 billion a year earlier. Much of this reflects a smaller remediation charge of £61 million compared with £912 million last year, when it included £800 million for motor finance commission arrangements.

Underlying net interest income rose 10% to £11.1 billion, while the banking net interest margin widened to 3.21%. The UK bank kept its 2026 guidance, saying net interest income should come in at around £14.9 billion. However, impairment charges set aside for loans that could go bad rose to £930 million from £618 million as the outlook for the UK economy deteriorated slightly.

Elsewhere, the energy sector is also on the rise. Shell is up 1.9% after posting Q3 adjusted earnings of £10.8 billion and announcing a £5 billion share buyback programme.

The economic calendar is relatively quiet. Attention will turn to the Bank of England rate decision next week.

FTSE 100 forecast – technical analysis

After a false breakout from the symmetrical triangle pattern, the FTSE 100 is once again looking to break out to the upside. The index trades above its 50 and 200 EMAs within the symmetrical pattern and is testing the upper boundary resistance.

A break above 10,760 would once again open the door to 10,890, the October high where the previous breakout failed. Buyers will then look towards 10,990 and fresh record highs.

On the downside, immediate support is seen at the 50 EMA and 10,690, before attention turns to 10,600 horizontal support. It would take a break below 10,435, the 200 EMA and rising trendline support, to signal a downside breakout, which would be confirmed by a break below 10,370, the October low.