EUR/USD falls to a 17-month low on French fiscal & Spanish political worries
EUR/USD has fallen to its weakest level since May 2025 amid growing concerns over political and fiscal risks across the region.
EUR/USD dropped to a low of 1.1160 after Spanish Prime Minister Pedro Sánchez called for an early election, adding to concerns surrounding Europe's fiscal outlook and France's bond market.
Investors remain on high alert for any signs of a deepening crisis in Europe's bond market, with rising borrowing costs increasingly spilling over into weakness for the euro.
The heavy debt loads of core euro-area economies such as France and Italy are a particular vulnerability in a world where borrowing costs are rising. Investors are increasingly concerned about France's political backdrop, where opposition parties are showing little appetite for compromise with President Macron's outgoing administration ahead of next year's election. Markets want to see signs of fiscal restraint, but political uncertainty could make that difficult to deliver.
At the same time, Sánchez's decision to call a snap election in Spain has raised fresh concerns over the fiscal discipline of any incoming government.
On the data front, eurozone services PMI was confirmed at 53.0 in September, in line with the preliminary reading. Sentix investor confidence is due shortly, followed by PPI data later today and eurozone retail sales tomorrow.
Meanwhile, the U.S. dollar is trading at an 18-month high despite softer-than-expected U.S. non-farm payrolls on Friday. While markets have reduced October rate-hike expectations to just 20%, they are still pricing an 87% probability of at least one rate hike before the end of the year.
ISM services PMI data will be in focus later today. Strong activity in the dominant U.S. sector could lift Treasury yields further, providing additional support for the dollar and putting further pressure on EUR/USD.
EUR/USD Forecast – Technical Analysis
EUR/USD ran into resistance at 1.1700 and has since rebounded lower, falling below its 50 and 200 EMAs to a low of 1.1160, a level last seen in May 2025. The RSI is deeply oversold, so a period of consolidation could be on the cards.
Sellers will look to take out 1.1160 to extend the move towards 1.1175, the May 2025 low. Below here, 1.10 comes into focus.
Buyers could be encouraged by the long lower wick. Any recovery would first need to retake 1.130 and the 1.1350 resistance zone. Above here, attention turns towards the 50 EMA at 1.1480 and then 1.1500. A sustained break above these levels would make the technical picture more stable.
DAX muted amid political instability in Europe
Concerns over Europe's political and fiscal outlook are being reflected more clearly in the FX market than in equities. European stocks remain relatively muted as investors digest growing political instability and rising borrowing costs across the region.
Spain's snap election will take place on November 29 after Congress rejected two housing decrees proposed by Sánchez's government, adding another layer of political uncertainty.
Meanwhile, oil prices are declining amid signs of increased global supply, helping to offset some of the inflationary pressure from ongoing tensions in the Middle East.
On the data front, German composite PMI, a useful gauge of business activity, came in line with expectations at 53.8.
Elsewhere, ECB chief economist Philip Lane said the ECB remains on a middle path for monetary policy and is not pre-committed to a particular course. He noted that activity levels in the euro area have been better than expected since the onset of the Iran conflict, while higher yields may already be doing some of the tightening work for the central bank.
Lane also suggested that the energy shock in Q2 and Q3 has been smaller than feared, although there remains an upside risk to inflation and a downside risk to growth if the energy shock intensifies.
DAX Forecast – Technical Analysis
After reaching a record high of 26,620 at the end of August, the DAX has reversed lower, breaking below its rising trend line and 50 EMA, creating a near-term bearish outlook. However, the index has so far found support above its 200 EMA.
Sellers would need to break below the 200 EMA at 24,900 to extend the bearish move and turn the longer-term outlook more negative. Below here, attention would turn to 24,500 horizontal support and then 24,000, the June low.
Should the 200 EMA continue to hold, buyers will look to rise above the 50 EMA at 25,565 and then 25,800 horizontal resistance. A sustained break above these levels would make the outlook more stable and turn attention back towards 26,500 and potentially fresh record highs.
