EUR USD Price Forecast - Euro to Dollar Sinks to 1.1615 as French Bond Turmoil

EUR/USD (EURUSD=X) Extends Decline Toward 1.1600 as French Political Crisis and Safe-Haven Dollar Flows Pressure the Euro

The EUR/USD (EURUSD=X) pair remains on the defensive, trading near 1.1615, its lowest level since early September, as mounting political instability in France and renewed strength in the U.S. dollar continue to weigh heavily on the common currency. Sellers have maintained control through midweek, extending a three-day losing streak that erased nearly 1.2% of the pair’s value. The decline follows the resignation of French Prime Minister Sébastien Lecornu, an event that plunged Paris into deep uncertainty and raised fears of a potential credit downgrade. Rating agencies have warned that France’s fiscal deficit and debt trajectory—expected to hit 111% of GDP in 2025—could trigger a negative outlook review if political gridlock persists. Investor confidence in the eurozone has weakened sharply, prompting capital flight into U.S. assets and reinforcing demand for the dollar as a global reserve refuge.

Dollar Strength Driven by External Fragility, Not U.S. Growth

While the U.S. dollar’s recent appreciation reflects risk aversion, it’s being fueled more by external weakness than domestic resilience. The DXY index gained 0.35% to 98.71, marking its third consecutive daily advance, but analysts note the move is defensive rather than growth-driven. The U.S. government shutdown, now entering its second week, has left markets without key macroeconomic data, complicating the Federal Reserve’s assessment of real economic conditions. Futures markets still price in a 95% probability of an additional 25-basis-point rate cut before year-end following the September reduction, while Fed speakers including Atlanta’s Raphael Bostic and Governor Adriana Kugler emphasize data dependence amid policy uncertainty. In this vacuum, the greenback benefits from safe-haven demand rather than yield advantage, with 10-year Treasury yields steady around 3.88%. The U.S. economy’s recent slowdown in factory output and flat labor participation rate contrast with the dollar’s firm tone, underscoring that the euro’s fragility—not U.S. strength—is driving the pair lower.

European Disarray Deepens as France’s Crisis Spreads to Bond Markets

The euro’s weakness is anchored in continental politics. France’s leadership crisis has forced President Emmanuel Macron to consider either a technocratic cabinet or snap elections as public trust erodes. French 10-year bond yields surged to 3.60%, up from 3.51% at last Friday’s close, reflecting renewed investor anxiety about fiscal credibility. The spread between French and German bonds widened to 78 basis points, its highest since 2012, raising fears of a fragmentation episode reminiscent of the eurozone debt crisis. The euro has suffered collateral damage, with EUR/USD losing nearly 4% since mid-September. Meanwhile, Germany’s factory orders fell 0.8% month-on-month in August, reversing July’s modest rebound, confirming stagnation across Europe’s industrial base. Year-on-year growth of 1.5% offers little comfort given energy costs and weak Chinese demand. The Sentix investor confidence index, although improving to -5.4 from -9.2, remains negative for the 11th consecutive month, highlighting the eurozone’s fragile sentiment foundation.

ECB Walks a Tightrope Between Fiscal Risk and Disinflation Narrative

The European Central Bank (ECB) finds itself cornered between deteriorating fiscal stability and an inflation slowdown that justifies policy patience. President Christine Lagarde reiterated that disinflation is progressing “as expected,” with headline inflation likely near 2.2% by year-end, but the market doubts the ECB’s ability to manage a fragmented fiscal backdrop. Internal models show that every 10 basis-point widening in French spreads can shave 0.03% from euro-area GDP growth over the next year. While the ECB continues its PEPP reinvestments to stabilize sovereign bonds, traders fear the central bank lacks the tools to contain political contagion. Lagarde’s upcoming address this week, alongside comments from Governing Council members Holzmann and Villeroy de Galhau, will be crucial for shaping near-term EUR/USD direction. Should their tone remain cautious, the euro could extend its slide toward 1.1575, the next key technical support.

Technical Landscape: EUR/USD Targets 1.1575 Amid Persistent Selling Pressure

From a technical standpoint, EUR/USD maintains a clear bearish bias. The pair has broken below its 1.1650 support, invalidating the ascending trendline connecting the May and August lows. Momentum indicators confirm strong downside control: the 14-day RSI sits near 40, approaching oversold territory but not yet indicating exhaustion, while the MACD histogram continues to widen negatively. The 200-period moving average has crossed below the 50-period, forming a bearish crossover that strengthens the short-term downtrend structure. The immediate support rests at 1.1575, followed by 1.1490, both representing potential inflection zones. Resistance emerges at 1.1650—now turned into a cap—and then at 1.1720, where a decisive breakout would be needed to reestablish bullish traction. Futures data from the CME Group confirm the market’s sentiment shift: open interest in Euro FX futures dropped by 1,560 contracts, while volume in December 2025 expiries reached 144,359, reflecting rising speculative positioning for further downside.