The euro has started the week under renewed pressure, with the EUR/USD pair falling to near 1.1160, its weakest level since May 2025, as. The pair has bounced from its lows, but the near-term outlook remains bearish for the single currency for now. There’s not much in the way of data this week, meaning the EUR/USD forecast will be mainly driven by political and fiscal concerns, as well as the bond and oil markets. All told, the risks remain tilted to the downside for the EUR/USD and other euro crosses.
Political risk leaves euro on the defensive
After the French-related sell-off last week, today it was Spain, where Prime Minister Pedro Sánchez called an early election, adding further to the political uncertainty to an already fragile fiscal backdrop in Europe. The bigger concern remains France, where rising borrowing costs and political divisions are putting renewed pressure on government finances.
Investors are increasingly wary of the debt burdens carried by major eurozone economies such as France and Italy at a time when borrowing costs are rising. France is particularly vulnerable. Markets are looking for credible signs of fiscal restraint, yet the political environment makes delivering them increasingly difficult. Opposition parties have shown little willingness to compromise with President Macron’s government, raising doubts over how much progress can be made on reducing the country’s deficit.
French government bonds will therefore remain firmly in focus this week. The question is whether last week’s sell-off will force politicians on either side of the spectrum towards a more fiscally responsible stance. For now, investors appear more inclined to demand a higher risk premium for holding French debt.
Euro is the weakest link
That risk is increasingly being reflected in the euro itself. EUR/USD broke lower in Asian trading amid broad-based euro selling, while sharper declines in EUR/CHF and EUR/GBP suggest the pressure is not simply a dollar story. Instead, investors appear to be demanding a larger political and fiscal risk premium on the euro. The economic calendar offers little to distract from these concerns. The ECB officials speaking this week need to maintain a sufficiently hawkish tone to keep inflation expectations anchored, while also remaining alert to the possibility that further deterioration in French bond markets could eventually require a policy response. Any policy mistakes could result in an even larger drop.
Dollar retains the upper hand
The dollar was in a broad consolidation mode for much of today’s session. Still, it remains relatively well supported. Friday’s softer US jobs report did little to alter expectations for Federal Reserve policy, with markets still looking for a rate increase this year, albeit it is now pushed to December from October. Any hawkishness in FedSpeak, FOMC minutes (dues Wednesday) or stronger data (not much on the front this week) could easily see markets price in more hikes.
Wednesday’s FOMC minutes could provide an important test. The minutes should offer further insight into why a sizeable number of Fed officials continue to see scope for another rate increase this year. Hint: inflation. But markets want to see confirmation and ahead of that we could see some further consolidation in the dollar.
Technical EUR/USD forecast and levels to watch
From a technical analysis point of view, EUR/USD is bouncing from the 127.2% extension of its last upswing, which started in June. On the hourly chart, a previous low that gave way yesterday is being tested from underneath. The daily chart's most important resistance meanwhile comes in around 1.1325ish to 1.1350, a former big support zone. The extension has provided support for now. Below it, the round handles at 1.1200 and 1.1100 come into focus, with 1.1000 ultimately on the cards if the macro backdrop does not change materially in the coming weeks.
For now, the euro is facing a difficult combination of political uncertainty, rising bond-market risk and a dollar that still enjoys a relatively hawkish interest-rate backdrop. Unless the situation in France stabilises, there is little reason to expect the EUR/USD forecast or direction to change meaningfully. For now, the risks remain tilted to the downside.
Watch: EUR/USD analysis video
