Euro at 1.1260 Stalls at 1.1277 Trendline After Four-Week 3.1% Slide — 1.1161 Retest in View

The euro traded at 1.1260 against the dollar on Tuesday morning in New York, up 38 pips or 0.34% from Monday's 1.1222 close. The session range runs from 1.1203 to 1.1277. One day earlier the pair had dropped as much as 0.8% to 1.1161, its weakest level since May 2025, before closing off the low. Tuesday's rebound puts spot 99 pips above that floor.

The scale of the preceding decline is what gives this bounce context. EUR/USD has fallen for four straight weeks, a combined loss of 3.1% and the longest weekly losing streak since May 2025. It was at 1.1623 on September 7 and 1.1377 as recently as September 28. The 2026 high is 1.2079, so the pair is 6.8% below its peak for the year and down 3.84% over twelve months. The 52-week range is 1.1161 to 1.2079, and the lower bound was set yesterday.

Two forces drove the selloff, and both eased on Tuesday without reversing. The first is French sovereign risk. The gap between French and German 10-year yields blew out last week to its widest in more than a decade, and the euro traded as a proxy for it. On Tuesday the French 10-year yield fell to 4.73% and the spread to German Bunds narrowed to 129 basis points, 30 basis points inside Friday's extreme, as National Rally leader Marine Le Pen presented a budget plan that markets judged less threatening than feared. The second force is the dollar, which reached an 18-month high on Monday with the index at 102.535. It slipped to 101.79 on Tuesday as the 10-year Treasury yield eased to 5.27%.

The view argued here is that this is a relief rally inside a downtrend. Spot stalled at 1.1277, exactly where a descending trendline on the four-hour chart and the 50% retracement of the latest leg down converge. The daily, weekly and monthly technical ratings all read strong sell. German factory orders collapsed 10.6% in August. The Federal Reserve raised rates last month and still has December in play. Until the pair reclaims the 1.1332 to 1.1355 zone, strength is an opportunity to sell, and a retest of 1.1161 is the more probable path, with 1.1100 and 1.1080 beneath it.

Tuesday's Tape: A Dip to 1.1203 on German Data, Then a 74-Pip Recovery

The session divided cleanly around two European events.

Asian trade was quiet. The pair held a 15-pip band between 1.1221 and 1.1236 through the early hours, consolidating after Monday's swing from an open near 1.1261 down to 1.1161 and back to 1.1222. A mild recovery attempt was capped just below 1.1230.

The first move came at 06:00 GMT with German factory orders for August. The headline was a 10.6% monthly decline against expectations for a fall of 1.0%, the sharpest drop since January. The euro slid toward 1.1200, and the low of the day printed at 1.1203. Bund yields fell on the number, compressing the rate support for the currency further. French industrial production added to the tone, falling 0.3% in August against a forecast gain of 0.2%.

The turn came from Paris. French government bonds had been rallying into a scheduled news conference by Le Pen, and they extended once she laid out deficit targets tighter than the government's own. The CAC 40 was little changed, but the bond market's reaction was enough. With French yields falling and spreads narrowing, the pressure that had been transmitted to the euro for a week began to release. The STOXX 600 gained 1.0%, helped as well by lower energy prices.

By 05:49 Eastern the pair was at 1.1242. It reached 1.1258 at 08:59 Eastern and touched 1.1277 around the release of U.S. trade data before settling at 1.1260. December euro futures on the CME traded at 1.1291, up 0.37%.

From low to high the range is 74 pips, an ordinary day by the standard of the past week. Monday's range was 101 pips. The pattern of the recovery is worth noting for what it did not do. It erased Monday's closing loss and returned the pair to where Monday opened, near 1.1261. It did not establish a price above Monday's high of 1.1262 that held. The 1.1277 print was rejected within minutes.

Shorter timeframes have flipped. The 30-minute and hourly technical summaries read strong buy, and the five-hour reading is neutral. Those signals describe momentum off the low. They sit underneath daily, weekly and monthly ratings that have not moved from strong sell.

France: A Budget Deadline, a 4.73% Ten-Year Yield and a 129-Basis-Point Spread

French fiscal risk has been the single largest driver of the euro for two weeks, and Tuesday was a scheduled inflection point.

October 6 is the deadline for the government to lodge its 2027 finance bill with the National Assembly. The government's plan targets a deficit of 5% of output next year. The fiscal starting point is poor: the year-to-date budget balance through August was a deficit of €159.6 billion, wider than the €145.9 billion recorded through July. Borrowing costs have risen to levels last seen in the early 2000s, with the 10-year yield approaching 5% at the worst of last week's selloff. The Bank of France's governor warned that the country risks being strangled by interest rates.

The political arithmetic is the source of the stress. The government lacks a majority, and its survival depends on whether the Socialists and the National Rally are prepared to bring it down over the budget. A presidential election follows next year, and Le Pen leads in polling.

Against that backdrop, her news conference on Tuesday carried market weight. She set out a scenario in which the deficit narrows to 3.7% of output next year, tighter than the government's 5%, falls below 5% from 2027 in any case, reaches 3% by 2032 at the latest and 2.2% in that year. She also said France could face default if current policy continues and called on the European Central Bank to act to ease the burden of interest rates on euro-area governments.

Bond investors took the deficit numbers as a signal that a change of government would not mean fiscal abandon. The 10-year yield fell to 4.73%. The spread over Bunds narrowed to 129 basis points from a Friday peak near 159, the widest since the euro-area debt crisis. French officials attributed last week's weakness to a shortage of buyers and set aside talk of activating the ECB's spread-control instrument. The absence of French supply this week has helped.

Relief of this kind can reverse quickly. The targets were described by some participants as optimistic, the call for central bank intervention raises its own questions, and nothing has been voted. Long-dated spreads imply that markets expect French and Italian borrowing costs to converge within a decade. The euro's 99-pip recovery reflects a 30-basis-point improvement in a spread that remains 129 basis points wide.

Germany: Factory Orders Fall 10.6%, and the Detail Is Better Than the Headline

The German data released Tuesday looked alarming and deserves a careful reading, because the market's initial reaction and the underlying picture diverge.

Factory orders fell 10.6% in August from July. Consensus was for a 1.0% decline. July's gain was revised up to 3.2% from 2.5%. On a year-over-year basis orders rose 2.7%, against an expected 13.1%. It was the largest monthly fall since January and pushed the euro to its session low.

The composition explains most of it. Orders in the category covering aircraft, ships, trains and military vehicles dropped 61.5% after more than doubling in July. Bulk contracts in that segment are lumpy and routinely distort the monthly figure. Excluding large-scale orders, the decline was 0.1%. Over the less volatile three-month comparison, orders from June through August were 1.3% higher than in the preceding three months.

That reading keeps German manufacturing out of the collapse the headline implies. It does not make the release a positive. Domestic orders fell 17.3% and foreign orders fell 5.4%, with the foreign decline spread almost evenly between euro-area and non-euro customers. On the three-month measure excluding large orders, the trend was down 2.6%. The construction sector is weakening as well: the German construction survey for September fell to 43.5 from 48.7, well under the 50 line that separates growth from contraction.

Other euro-area numbers on Tuesday were soft. Retail sales rose 0.1% in August against a 0.2% forecast and 0.8% year over year against 1.0%. The euro-area construction survey came in at 43.4. France's was 39.8. Spanish industrial production growth slowed to 1.5% from 2.5%.

Set against that is a manufacturing sector that, by the September survey, was expanding at 52.9 with output and new orders growing at their fastest pace since early 2022. The euro area is not in recession. It is growing unevenly, with costs rising faster than activity.

German industrial production for August is due Wednesday, with consensus at a 0.5% gain after a 1.1% decline. A miss there would be harder to explain away than Tuesday's orders figure.

For the currency, the relevance is relative. U.S. third-quarter growth is tracking at 3.7% annualized. Germany's order book ex-bulk is flat. Growth differentials favor the dollar, and Tuesday's data reinforced that at the margin.

The ECB at 2.50%: Hiking Into Inflation, Constrained by Sovereign Stress

The European Central Bank is tightening, and under normal conditions that would support the euro. The conditions are not normal, and the currency is not getting the benefit.

The deposit rate stands at 2.50% after increases in June and September. Money markets price two to three more increases over the coming year. Inflation justifies it. German consumer prices rose 3.3% in September, the highest since December 2023. Euro-area inflation is running 1.3 percentage points above the policy rate. Producer prices are 8.2% higher than a year ago, and Austrian wholesale prices rose 10.2% year over year in September, up from 8.2%. The ECB's chief economist warned this week on the pass-through of energy costs to broader prices.

The problem is that the tightening is colliding with fiscal fragility. Higher policy rates lift borrowing costs for the most indebted governments, and France and Italy carry heavy debt loads into a world of rising yields. Every increase in the deposit rate widens the hole in the French budget. That is the context in which a leading French presidential candidate asked the central bank on Tuesday to lower borrowing costs so governments can invest in defense and technology.

Markets are drawing the obvious inference. A central bank that faces a sovereign spread problem has less room to raise rates than its inflation data alone would suggest. If the ECB delivers fewer increases than the two to three currently priced, rate support for the euro erodes. If it delivers them and spreads widen again, the currency falls on fiscal risk. Either path is negative for EUR/USD in the near term, which is why the pair has declined during a hiking cycle.

The spread-control instrument is the release valve. Officials have set aside discussion of using it for now. Activation would calm bond markets and would also mean the central bank buying the debt of a country without an agreed budget, a step with political costs.

The next policy meeting is October 29. An ECB Executive Board member speaks Tuesday, and a Bundesbank vice president is also scheduled. German two-year yields fell at Tuesday's auction, with the Schatz sold at 3.10% against 3.27% previously, a sign that the short end is already trimming rate expectations.

The comparison with the Federal Reserve is unfavorable. The U.S. two-year yield is 4.83%. The German equivalent is 3.10%. The 173-basis-point gap is the carry an investor earns for holding dollars over euros at that maturity.

The Dollar Side: An Index at 101.79 After Monday's 102.535 Peak

The dollar gave back a little ground on Tuesday, which accounts for some of the euro's recovery. The move was small.

The dollar index traded at 101.79, down 0.14%, after reaching 102.535 on Monday, its highest in 18 months. The retreat tracked Treasury yields. The 10-year fell 4.5 basis points to 5.268% from a 5.31% close that was the highest in 24 years. The 30-year eased 3.9 basis points to 5.625%, and the five-year slipped to 5.03%.

The policy picture has not shifted. The Federal Reserve raised rates in September. After Friday's weak jobs report, futures put the probability of no change at the October meeting at 78%, and December remains open. Price data are firm: the September services survey recorded the fastest rise in prices paid in more than four years, and diesel averaged above $6 a gallon last month. A headline circulating on Tuesday summed up the dollar's position as gaining while Fed increases remain on the table.

Tuesday's U.S. data did not change the calculus. The August trade deficit widened to $105.6 billion from a revised $92.8 billion, the largest since March 2025 and above the $102.0 billion consensus. Imports rose $17.2 billion to $420.8 billion and exports rose $4.5 billion to $315.2 billion. A wider deficit is, in textbook terms, a negative for a currency. In practice the report signaled strong domestic demand, and the dollar barely reacted.

The move in recent sessions has been described on trading desks as a euro story more than a dollar story. Dollar direction over the past two days has been attributed to volatility in the single currency, which makes up the largest share of the index. That matters for how to read Tuesday's dip in the index. It reflects the euro stabilizing on French news more than any reassessment of U.S. policy.

Other pairs confirm the dollar is not broadly weaker. Dollar-yen traded at 158.20, up 0.18%. The Australian dollar was flat at 0.6970. Sterling rose 0.15% to 1.3239 and has been gaining against the euro, up 0.2% on the cross on Monday.

A heavy slate of Fed speakers is due. The New York Fed president speaks twice on Tuesday, a governor and the Dallas Fed president are also scheduled, and the minutes of the September meeting follow on Wednesday.

The Chart: A Descending Trendline at 1.1275 and a Strong-Sell Daily Rating

The technical structure is bearish on every timeframe above intraday, and Tuesday's high tested the first serious barrier.

The reference move is the decline from the 1.1380 swing high to the 1.1166 low, a drop of 214 pips. Its retracement levels are 1.1217 at 23.6%, 1.1273 at 50% and 1.1298 at 61.8%. On Monday the pair was consolidating below the first of those. On Tuesday it cleared 1.1217 and ran to 1.1277, four pips through the halfway mark, before backing off.

That level has company. A descending trendline on the four-hour chart, drawn across the highs of the decline, comes in at 1.1275. A pullback resistance sits at 1.1280. On the hourly chart the 100-period moving average is at 1.1284. Four separate references fall within nine pips of each other, and the day's high landed in the middle of them.

Above that cluster the next layer is 1.1300, Friday's high, then a horizontal level at 1.1312 and 1.1320. The 200-period moving average on the hourly chart is at 1.1332. A close above 1.1320 would open a move toward the 100-period average on the four-hour chart at 1.1420.

Momentum is weak without being exhausted. The 14-period relative strength index was near 38 before Tuesday's bounce, a level that signals persistent selling pressure and stops short of the sub-30 readings that mark a washed-out market. That leaves room for another leg lower before the indicator would argue for a durable low.

The broader damage is significant. The pair failed at 1.1700 resistance in September, fell through both its 50-day and 200-day exponential moving averages, and then broke the 1.1355 to 1.1394 zone that had served as key weekly support, defined by the 38.2% retracement of the 2025 advance and the July swing low. Former support of that importance typically becomes resistance.

A setup published Tuesday morning identified 1.1232 as pullback resistance aligned with a 61.8% retracement on the hourly chart and looked for a reversal toward 1.1164. Price went through that pivot, which triggers the alternative scenario of a rise to 1.1280. That target was met at the 1.1277 high.

Longer-horizon ratings are uniform: strong sell on the daily, weekly and monthly summaries.

Downside Levels: 1.1203, 1.1161 and the Path to 1.1100 and 1.1080

Support beneath the market is thin compared with the layers of resistance above it.

The first reference is the broken hourly pivot at 1.1232, now initial support, followed by 1.1215 to 1.1217 and the session low at 1.1203. A return below 1.1200 would hand control back to sellers and negate the hourly buy signals.

Then comes the floor. Monday's low is quoted between 1.1160 and 1.1166 depending on the venue, and 1.1161 is the 52-week low on the benchmark quote. A pullback support is marked at 1.1164. This is the lowest level since May 2025, and a sustained break would open further downside in the short term.

Beneath 1.1161 the next reference is 1.1150. A close below it is the trigger most short-term models use for acceleration. The weekly chart shows a support zone from 1.1110 to 1.1163, the lower half of which has not been tested. The 1.1100 round number sits just above the May 2025 low. A measured target on the four-hour chart is 1.1080, also identified on longer-term studies as key structural support. After that the references are 1.1000, a psychological level, and a rising channel boundary from the 2022 low that comes in between 1.06 and 1.09.

From 1.1260, the distance to 1.1161 is 99 pips, to 1.1100 is 160 pips and to 1.1080 is 180 pips, a decline of 1.6%.

The conditions that would produce those levels are identifiable. French spreads widen again, either because the budget fails to find support in the Assembly or because the market reconsiders Tuesday's relief. The 10-year Treasury yield pushes back above 5.31%. The September U.S. inflation report on October 14 revives expectations for an October rate increase. German industrial production disappoints on Wednesday.

Positioning argues that a break lower would have less fuel than the past month's move. Speculators already hold a net short of 63,256 contracts in euro futures. Options positioning into Friday's expiry shows the point of maximum pain 3% above spot, in the 1.16 area, which indicates how far the market has moved from where options were struck. Crowded shorts and distant strikes do not prevent a decline, but they raise the odds of sharp countertrend rallies like Tuesday's along the way.

The 1.1161 level has been tested once. A second approach that holds would begin to build a base. A second approach that breaks would likely travel quickly to 1.1100, because there is little chart history between the two.

Upside Levels: 1.1300, 1.1332 and the 1.1355 Zone That Would Change the Picture

For the recovery to become more than a correction, it has to clear three bands of resistance in sequence.

The first is where it stalled on Tuesday, 1.1273 to 1.1284, containing the 50% retracement, the four-hour trendline, a pullback level and the hourly 100-period average. A sustained hourly close above 1.1284 would be the first sign that sellers are stepping back.

The second runs from 1.1298 to 1.1332. It holds the 61.8% retracement at 1.1298, Friday's high just under 1.1300, the horizontal level at 1.1312, the 1.1320 resistance and the hourly 200-period average at 1.1332. Any recovery has to retake 1.1300 before the technical picture stabilizes, and Friday's failure there is the most recent evidence of supply.

The third is 1.1350 to 1.1394. This is the former weekly support zone, built from the 38.2% retracement of the 2025 advance, the April high close and the July swing low. The pair spent months above it and broke through in late September. A weekly close back above 1.1355 would mean the breakdown had failed, and that is the level at which the bearish view in this article is wrong.

Beyond it, references are 1.1377, the high of September 28, and 1.1420, the 100-period average on the four-hour chart. A model-based forecast puts the pair at 1.13 by the end of the quarter, which is 40 pips above spot and inside the second resistance band.

Distances from 1.1260: 24 pips to 1.1284, 72 pips to 1.1332, 95 pips to 1.1355.

What would carry the pair there? A French budget that secures enough support to pass would be the largest single catalyst, and a spread back under 100 basis points would remove most of the risk premium priced into the euro. A soft U.S. inflation print on October 14 would pull Treasury yields lower and the dollar with them. An ECB that signals it will keep raising rates while standing ready to contain spreads would give the currency rate support and a backstop at once.

Short covering would amplify any of those. A net short of 63,256 contracts is a large position to unwind, and the fastest rallies in a downtrend come from exactly this configuration.

The bounce so far has recovered half of the last leg down. Recoveries that stall at the 50% level and roll over are a common feature of trending markets, and the burden is on buyers to show this one is different.

Rate Differentials: 173 Basis Points at Two Years and Why Carry Favors the Dollar

Strip out the politics and EUR/USD is still a function of relative interest rates, and those favor the dollar by a wide margin.

At the two-year maturity, the U.S. Treasury yields 4.83% and the German Schatz was auctioned on Tuesday at 3.10%. The difference is 173 basis points. At ten years, the Treasury yields 5.27% and the French benchmark 4.73%, a gap of 54 basis points against the highest-yielding large euro sovereign, and wider against Germany. The three-month Treasury bill yields 4.16%. The ECB deposit rate is 2.50%.

A gap of that size affects the pair through several channels. It sets the forward points: December euro futures at 1.1291 trade 31 pips above spot, the premium that compensates for the lower euro interest rate. It determines hedging costs for European investors in U.S. assets, which influences how much currency exposure they leave open. And it attracts unhedged capital into dollar deposits and short-dated Treasuries.

The direction of travel matters as much as the level. Both central banks are raising rates, and analysts earlier this year described the pair as stuck in the middle because neither offered a clear divergence signal. That balance broke in September. The Fed raised rates and kept December open while U.S. growth ran at 3.7%. The ECB raised rates and immediately ran into French spread stress, with German short yields now falling. The bear case for the pair set out months ago was that the dollar would re-establish a yield advantage above 150 basis points, and at two years it now has.

Treasury supply this week will test the dollar leg. The U.S. sells $58 billion of three-year notes on Tuesday, where the previous auction cleared at 4.474%, and ten-year notes on Wednesday, where the previous sale cleared at 4.834%. Yields have risen substantially since both, so the new clearing levels will be much higher. Strong demand would push yields down and help the euro. Weak demand would do the opposite.

There is a second-order risk for the dollar in its own bond market. A 10-year yield at a 24-year high reflects concern over deficits and issuance, and speculators hold a net short of 900,615 contracts in 10-year futures. Over a longer horizon, fiscal worries can undermine a currency. For now, both sides of the Atlantic have a fiscal problem, and the market has decided that the one with a 5% deficit, no parliamentary majority and a shared central bank is the more urgent.

Politics Across the Euro Area: France, Spain and a Crowded Calendar

The euro is carrying a political risk premium from more than one capital, and the calendar over the next month keeps it in place.

France is the center of it. The 2027 budget was due before the National Assembly on Tuesday. The government needs either the Socialists or the National Rally to refrain from bringing it down, and both have reasons to keep their options open with a presidential election next year. Tuesday's shadow budget from Le Pen was read by markets as an attempt to reassure investors of her fiscal credentials. The proposal sits alongside her demand that the central bank intervene on borrowing costs, which is a direct challenge to the institution's independence in setting rates.

Spain added a second front on Monday. The prime minister called an early election, and the announcement coincided with the euro's slide to 1.1160. Spanish debt costs have risen with the rest of the periphery: twelve-month bills were auctioned on Tuesday at 2.999%, up from 2.832%, and six-month bills at 2.769% from 2.623%.

Italy is the country markets watch for contagion. Long-dated spread pricing implies investors expect French and Italian borrowing costs to converge by 2036, far sooner than official projections for 2042 to 2046. That pricing shows how far French credit has been marked down, more than it shows any improvement in Italy.

Political uncertainty in most of the euro area's major economies was cited repeatedly on Tuesday as a weight on the currency. Germany and France did find common ground on one matter, jointly proposing measures to counter a surge of Chinese goods into the bloc, a reminder that trade policy is another variable for the export-dependent north.

The scheduled events are close together. The European Council meets on October 15 and 16 with the European Union budget on the agenda. The ECB meets on October 29. The French budget debate runs through the autumn with confidence votes possible at several stages.

Across the Atlantic, U.S. midterm elections are four weeks away, and betting markets point to a higher probability of a divided Congress. Political risk exists on the dollar side too. The difference is institutional. The United States has one treasury and one central bank. The euro area has one central bank and twenty treasuries, and stress in one of the large ones is transmitted to the common currency in a way that has no American equivalent.

That structural feature is why a 30-basis-point move in a French spread was worth 99 pips in EUR/USD on Tuesday.

What to Watch: Auctions, Fed Minutes, German Output and the October 14 Inflation Report

The next eight days hold the events that will decide whether 1.1161 was a low or a pause.

Tuesday afternoon: the $58 billion three-year Treasury auction, two appearances by the New York Fed president, and remarks from a Fed governor and the Dallas Fed president. The Atlanta Fed updates its third-quarter growth estimate, currently 3.7%. Any hawkish tilt from officials would lift the dollar off Tuesday's low at 101.79.

Wednesday: German industrial production for August, with consensus at plus 0.5% after minus 1.1%. French trade data follow, with a deficit of €6.5 billion expected. In the United States, the 10-year note auction and the minutes of the September Federal Reserve meeting are the main events, along with the New York Fed's survey of consumer inflation expectations, previously 3.6%. The minutes will show how broad support for the September increase was and how officials view the rise in long-term yields.

Through the week: the progress of the French finance bill, statements from opposition parties on whether they will support a no-confidence motion, and any ECB commentary on spreads.

Friday: a large euro options expiry with strikes clustered far above the market.

Monday, October 12: Columbus Day. U.S. bond markets are closed, currency markets are open, and liquidity will be thinner than usual.

Wednesday, October 14: the September U.S. consumer price index. This is the most important release for the dollar this month. A reading above consensus would bring October back into play for the Fed and would likely send EUR/USD through 1.1161. A reading below would be the first data-driven argument for dollar weakness in weeks.

October 15 and 16: the European Council. October 29: the ECB decision. End of October: the Fed decision.

Oil is a variable for both currencies. Brent fell 2.02% to $98.29 and West Texas Intermediate dropped 2.21% to $87.45 on Tuesday. The euro area is a large net energy importer, so lower crude improves its terms of trade and eases the inflation that is pushing the ECB to tighten into fiscal stress. Sustained Brent below $100 is a modest positive for the euro. A renewed spike on Gulf shipping attacks would hurt it more than it would hurt the dollar.

Gold's rebound to $4,181.80 and a 1.0% gain in European equities round out a day on which risk appetite improved across assets. The euro participated, and it did so less than the improvement in French bonds alone would have implied.

Verdict: Bearish, Sell Rallies Below 1.1332, With 1.1161 and 1.1100 the Targets

Tuesday's rebound is a correction of an oversold move, and the evidence for a change in trend is not there yet.

The case for staying bearish rests on five points. The pair has lost 3.1% in four weeks and broke weekly support at 1.1355 to 1.1394 on the way down. Daily, weekly and monthly technical ratings all read strong sell. The recovery stopped at 1.1277, inside a nine-pip cluster formed by a 50% retracement, a descending trendline and a moving average. The two-year yield gap stands at 173 basis points in the dollar's favor, with the Federal Reserve still weighing a December increase. And the driver of the bounce, a 30-basis-point narrowing in the French spread, leaves that spread at 129 basis points with no budget passed and an opposition leader asking the central bank to cap yields.

The bullish counterpoints are real and mostly tactical. Speculators are short 63,256 contracts and vulnerable to a squeeze. Hourly momentum has turned positive. German orders excluding bulk items fell 0.1%, so the headline overstates the weakness. Euro-area manufacturing was expanding at 52.9 in September, and the ECB is raising rates. Oil is falling. The 1.1161 low held on first test.

Weighing the two, the stance is bearish. Rallies into 1.1275 to 1.1332 are opportunities to sell. The first target is a retest of 1.1161, 99 pips below current levels. A daily close under 1.1150 extends the objective to 1.1100 and then 1.1080, a decline of 1.6% from 1.1260. The view is invalidated by a weekly close above 1.1355, which would signal that September's breakdown had failed and would open 1.1420.

Risk and reward from a sale near 1.1300 are favorable, with 55 pips to the invalidation level and 139 pips to the first target. From 1.1260 the ratio is less attractive, 95 pips against 99, which argues for waiting on a better entry or a break back below 1.1232.

Two events could change the assessment quickly. A French budget agreement that brings the spread under 100 basis points would remove the main reason to be short. A weak U.S. inflation report on October 14 would undercut the dollar's rate advantage. Neither has happened.

The euro reached a 17-month low because its largest fiscal problem and its central bank's inflation fight are pulling in opposite directions while the dollar offers 173 basis points more at two years. One day of calmer French bonds has not resolved that.

That's TradingNEWS