EUR/USD forecast remains tilted lower with French bond troubles ahead of US jobs report

The EUR/USD has this week tagged a fresh year-to-date low as French public-finance concerns triggerred a government bond sell-off. Today's US jobs report may change little, with resilient activity, elevated energy prices and hawkish Fed bets keeping the greenback supported. With the pair trapped below resistance at 1.1410, the risk to the near-term EUR/USD forecast is tilted to the downside. 

 

Key takeaways

• French public-finance worries have sent EUR/USD to fresh year-to-date lows.
• US resilience and hawkish Fed bets keep the greenback supported.
• Below 1.1410, the near-term risk is tilted to the downside.

 

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US jobs expectations underpin the dollar argument

 

Resilient US economic activity is an important part of the argument for continued dollar support. The September payrolls report is due shortly and a headline print of 85,000-90,000 new jobs are expected to be seen, with the unemployment rate at 4.1% and annual wage growth at approximately 3.1%. 

 

Meanwhile, continued gains in oil prices, and the selling in bond markets, can give the greenback additional support. That leaves the dollar in a tricky situation and the reaction to the jobs report is not going to be straight forward. 

 

French debt concerns complicate the euro outlook

 

The euro faces a different problem. Concerns over French public finances are linked to a sell-off in government bonds and pressure on the currency. With little prospect of meaningful fiscal consolidation in that assessment, French debt remains vulnerable, while possible contagion to Italy and Spain adds another concern.

 

That leaves the ECB with a difficult policy balance. Further monetary tightening could exacerbate financial stress when government bond markets are under pressure. The question raised is whether another 75 basis points of rate hikes could be delivered without making the sovereign debt situation more difficult.

 

Intervention to stabilise bond markets could involve a more cautious policy stance or the use of the ECB's Transmission Protection Instrument. Both possibilities risk adding to pressure on the euro. Sovereign bond volatility combined with softer interest rate expectations could also leave the currency exposed against the Swiss franc.

 

Strong inflation data illustrate the ECB's dilemma

 

The September eurozone inflation figures show an acceleration to 3.8% from 3.2%, the highest since 2023. Although largely energy-driven, the increase alongside firmer food and core inflation suggests that higher energy costs may be feeding through into broader prices, rather than remaining confined to energy itself.

 

Food inflation increased from 1.1% to 1.4% in those figures, while core inflation edged up from 2.4% to 2.5%. That combination complicates the effort to contain inflation when elevated energy prices are also weighing on economic confidence and financial stability. A cautious policy response would not remove those price pressures.

 

Higher oil prices and rising bond yields can encourage expectations of further rate hikes in the US and elsewhere. But sovereign debt stress makes tighter European policy a less straightforward source of currency support, even when inflation itself argues against a softer stance.

 

Technical EUR/USD forecast and key levels to watch

 

From a technical analysis point of view, the path of least resistance is to the downside. The yellow line at 1.1410 is the key resistance needed to be retained for this assessment, having supported earlier rallies before price broke back below it. Another zone, between, 1.1325-50 area is the more immediate resistance.

 

 

Frequently Asked Questions

 

Which other lower EUR/USD levels were identified?

Further down, 1.1200 is another round handle, while 1.1000 is the next major psychologically important level on EURUSD chart. 

What could change the bearish outlook?

An unexpected US-Iran deal could ease crude oil prices and bond yields, providing EUR/USD and other major currency pairs with a reason to rally.