Euro at 1.1205 Extends a 3% Four-Week Slide as OAT Yields Near 5% and the ECB Signals an October Pause — 1.1096 in Sight

EUR/USD trades at 1.1205, down 0.45% on the day, after falling to 1.1161 in Asian hours. That low is the weakest level since May 2025 and extends a run of four consecutive weekly declines worth 3%. The pair closed last week near 1.1255 and has spent the European session trying, and so far failing, to hold above 1.1200.

The timing is what stands out. On Friday the United States reported payroll growth of 29,000 against 84,000 expected, and the probability of a Federal Reserve hike on October 28 dropped from 70% to 20.5%. A data miss of that size would ordinarily sell the dollar and lift the euro by a full cent. EUR/USD rose briefly, reversed, and has since lost another 90 pips.

The reason is on the European side of the pair. France's 10-year government bond yield touched 4.99% on Friday, above its 2008 peak and within a basis point of a level last seen in 2002. The premium over German Bunds widened to 147 basis points on Monday, the largest gap since 2012. The move followed a 2027 budget that cuts the deficit by only 0.4 percentage points of GDP and that the country's fiscal watchdog judged to rest on optimistic assumptions.

That changes the character of the decline. Through September the euro's fall was a dollar story, driven by a Fed hike and Treasury yields at multi-decade highs. Since October 1 it has become a euro story. The single currency is down against every major peer on Monday: 0.58% against the yen, 0.44% against the Swiss franc, 0.33% against sterling. A currency that falls across the board on a day its main counterpart has bad news is carrying a risk premium.

The European Central Bank cannot easily respond. Inflation hit 3.8% in September, nearly twice the target, yet officials are signaling a pause in October because rising bond yields are already tightening conditions. The usual support from higher rates is absent.

Momentum is stretched. The daily relative strength index is below 30, and major supports sit close at 1.1130 and 1.1098. The forecast turns on whether French spreads stabilize before those levels are tested, and nothing in Paris suggests they will.

From 1.2082 to 1.1161: Nine Months of Decline

The euro began 2026 near 1.1750 and peaked at 1.2082 in late January. At the time the ECB had finished cutting, the Fed was expected to ease through the year, and euro-area inflation stood at 1.7%. The consensus saw EUR/USD above 1.20 by year-end.

The war in the Gulf reversed each of those assumptions. The closure of the Strait of Hormuz sent oil and gas prices sharply higher, and Europe, as a net energy importer, absorbed the shock through its trade balance and its inflation rate at once. By mid-July the pair had dropped to 1.1420. The ECB shifted from easing to tightening, raising its deposit rate in June and again in September, and the Fed followed with a hike of its own in September.

The latest leg began four weeks ago. EUR/USD lost 2.5% in September as the U.S. 10-year yield climbed through 5% and the dollar index reached its highest level in more than a year. The pair broke 1.1325, the June 24 low, in the final week of the month and printed 1.1312 on September 30.

October has added a second driver. France unveiled its 2027 budget on October 1, and the bond market's verdict was immediate. The French-German spread widened past 130 basis points that day, its largest weekly increase in 17 years, and EUR/USD fell to 1.1215 on Friday before the weekend. Monday's open took out that level and 1.1200 in the first hours of Asian trading.

The cumulative damage is substantial. From the January high, EUR/USD is down 7.3%. For the year it is down 4.6%. The pair now sits 228 pips below its 100-week moving average at 1.1360 and has broken beneath the 38.2% retracement of the entire 1.0177 to 1.2082 advance at 1.1355.

Forecasts have not kept pace. A survey of 28 institutions puts the fourth-quarter consensus at 1.1598, with a range of 1.1100 to 1.2000. The spot rate is already at the bottom of that range, and 72% of respondents in a sentiment poll remain bullish over a one-to-three-month horizon. When price falls through the consensus low and positioning surveys still lean long, estimates tend to be revised down, and those revisions add selling.

The 2026 range now stands at 1.1161 to 1.2082, a span of 921 pips, and the pair is trading at its floor.

France: A 4.99% Yield and the Widest Spread Since 2012

The French bond market is the source of the pressure. The 10-year OAT yield reached 4.99% on Friday and traded between 4.89% and 4.91% on Monday. It has risen more than a full percentage point since June, and the third quarter brought the largest quarterly increase in nearly four decades. A move through 5% would be the first since 2002.

Germany's 10-year Bund yield, by contrast, fell to 3.43% on Monday from a 17-year high of 3.64% on October 1. Investors are selling France and buying Germany, the classic pattern of stress inside the currency union. The gap between the two reached 147 basis points on Monday and has printed as wide as 154. It has almost doubled in a month and is approaching the record set during the sovereign debt crisis in 2011.

France now pays more to borrow than Italy or Greece. That inversion would have been unthinkable five years ago and reflects a judgment that the country's political system cannot deliver consolidation. Prime Minister Sébastien Lecornu leads a minority government, parliament is deadlocked, social unrest is rising, and a presidential election is due in 2027.

Flows confirm the shift in sentiment. One large Japanese asset manager has sold its entire holding of French government bonds. Hedge funds are adding to short positions in the euro. The CAC 40 fell 0.77% on Monday while London, Frankfurt and the pan-European index all rose.

For EUR/USD, the spread matters more than the outright level of yields. A higher Bund yield attracts capital to the euro area and supports the currency. A higher OAT yield driven by credit concern does the opposite, because it raises the question of whether the monetary union's second-largest economy will need support and whether the central bank will be forced to choose between fighting inflation and containing a funding crisis.

The correlation has tightened accordingly. Each 10-basis-point widening in the spread over the past week has coincided with a decline of 40 to 50 pips in the pair. At 147 basis points the market is pricing sustained stress. A move toward 170 or 180 would put the 2011 record in play and would likely take EUR/USD through 1.1100.

The reverse also holds. A credible budget compromise that pulled the spread back toward 120 would remove a large part of the discount and could lift the pair 150 pips without any change in U.S. conditions.

The Budget Arithmetic Behind the Sell-Off

The numbers in the French budget explain why the market reacted as it did.

The government's plan combines spending restraint and revenue measures worth between €43 billion and €54 billion, depending on what is counted. Even if every measure passes intact, the deficit falls from 5.4% of GDP to 5.0%. That is well above the 3% ceiling in European fiscal rules and leaves the debt ratio rising, to 121.7% of GDP in 2027.

Interest costs are the core of the problem. Debt service is projected to climb from €79 billion in 2026 to €91 billion in 2027, an increase of 15.2% in a single year. That sum is nearly double the core defense budget. France needs to raise €340 billion in the market, and private investors are being asked to absorb net issuance equal to 7.5% of GDP this year, the highest share on record, now that the central bank is no longer buying.

The dynamic is self-reinforcing. Each rise in yields increases future interest costs, which widens the deficit, which requires more borrowing at higher yields. With the 10-year rate near 4.9% and nominal growth well below that, the debt ratio rises unless the primary balance improves sharply, and the budget does not deliver that improvement.

The independent fiscal council described the government's growth and revenue assumptions as optimistic. Markets drew the conclusion that the real deficit path is worse than the published one.

Politics compounds the arithmetic. A minority government must find votes for unpopular measures in a fragmented assembly. Failure to pass a budget would mean rolling over the current year's spending, a wider deficit and the risk of another government collapse. European authorities have asked every member state to finalize budgets by mid-October, which puts a hard date on the negotiation.

Ratings are the next risk. The agencies have already lowered France's standing over the past two years, and a budget failure or a further rise in debt costs would invite additional downgrades. Some institutional mandates require minimum ratings, so a downgrade can force selling regardless of price.

None of this resolves quickly. The parliamentary process runs for weeks, and the opposition has little incentive to rescue the government ahead of a presidential campaign. That timeline is why the euro has found no floor. Buyers who would normally step in after a 3% decline have no event on the calendar that promises relief, and several that could make matters worse.

Contagion Risk and the ECB's Backstop

The question that turns a French problem into a euro problem is whether the stress spreads.

There are early signs that it is spreading. The Italian-German 10-year spread widened to 105.7 basis points last week, its largest since June 2025. Reports that Spain may hold an early election added to the unease on Monday. Peripheral bonds, which had been stable through the summer, sold off into the end of last week alongside French debt.

The position is still far from the 2011 crisis. Italy's deficit has been shrinking, and its debt trajectory improved in the second quarter. Spain's economy is the strongest among the large members, with services activity expanding at a 58.3 pace. Greek and Portuguese spreads are tighter than France's. For now the market is treating this as a country story, and the view among strategists is that Germany and the wider union would act if the strain deepened.

The instrument designed for that purpose is the Transmission Protection Instrument, which allows the ECB to buy the bonds of a member state facing disorderly market conditions. Its use carries conditions. The widening must be unwarranted by fundamentals, and the country must comply with European fiscal rules. A spread driven by France's own budget choices, with a deficit at 5% of GDP, is difficult to describe as unwarranted. Activating the tool for a country in breach of the fiscal framework would be legally and politically contentious.

There is also a monetary conflict. Buying French bonds would expand the central bank's balance sheet while inflation runs at 3.8%. The ECB would be tightening with one hand and easing with the other.

The currency implications differ by scenario. If the ECB stays out and spreads keep widening, the euro carries a rising fragmentation premium and falls. If the ECB intervenes without credible fiscal commitments from Paris, the market may read it as monetization of deficits, which is also negative for the currency. The only clearly euro-positive outcome is a political agreement in France that makes intervention unnecessary.

Officials have so far avoided the subject. That silence is itself informative: it suggests the bar for action is higher than current spreads. Markets tend to test such thresholds until they find them, and the level that prompts a response may be well above 150 basis points.

The ECB's Bind: 3.8% Inflation and No October Hike

Monetary policy is offering the euro no help, which is unusual with inflation this high.

Euro-area consumer prices rose 3.8% in the year to September, up from 3.2% in August and above the 3.6% consensus. It is the highest reading in three years. Producer prices jumped 1.9% in a single month. Inflation in all four of the largest economies exceeded forecasts, with energy the main driver.

The ECB has raised its deposit rate twice, on June 11 and September 10, to 2.50%. Markets price two to three further moves over the coming year. Yet the odds of a hike at the October 29 meeting have fallen below 30%, and most forecasters now expect the next increase in December, when new staff projections are published.

President Christine Lagarde set that tone last week. She described measured increases as appropriate, attributed the inflation surge to oil and gas, and said there is no evidence yet of second-round effects through wages. Her comments were read as dovish relative to the data.

Chief Economist Philip Lane went further on Monday. He said the rise in long-term government bond yields amounts to a material tightening of financial conditions that will slow growth and reduce the pass-through of energy costs by more than the September forecasts assumed. He argued that demand destruction from high energy prices can limit how far the central bank needs to raise rates, and noted that the fiscal impulse will turn from positive in 2026 to negative in 2027 and 2028.

The message is that the bond market is doing the ECB's work. That may be sound economics. For the currency it removes the one support that high inflation normally provides. A central bank that hikes into rising prices attracts capital. A central bank that holds because sovereign stress is tightening conditions does not.

The ECB's own projections show the bind. It forecasts inflation at 3.0% for 2026 and 2.5% for 2027, with growth of 0.9% and 1.4%. Actual inflation is now running eight-tenths above this year's projection, so real policy rates are deeply negative at minus 1.3%.

The account of the September meeting is published on Thursday at 11:30 GMT. It will show how divided the council was before French spreads blew out. A hawkish account could offer the euro brief support, though events since have overtaken the discussion.

Euro-Area Data: Activity Holds, Confidence Slips

Monday's releases showed an economy that is still growing and investors who doubt it will last.

The final services purchasing managers' index for the euro area was confirmed at 53.0 for September, up from 51.7 in August and in line with the preliminary estimate. The composite index stood at 53.1, the third consecutive month of expansion and the fastest pace in nearly three and a half years.

Country readings diverged. Spain's services index rose to 58.3, beating the 57.1 forecast and the prior 57.8. Germany's was confirmed near 53.0, a sharp improvement from 49.7 in August, with its composite at 53.8. Italy disappointed badly, falling to 51.7 from 55.2 against expectations of 54.6. France slipped to 51.2 from a preliminary 51.4.

The split maps onto the bond market. The two countries with the weakest services readings are the two whose spreads are widening. Higher borrowing costs are beginning to show in activity where fiscal stress is concentrated.

Investor sentiment turned lower. The Sentix confidence index dropped to 2.7 in October from 5.1, missing a consensus between 4.5 and 5.0 and retreating from a four-year high. The detail was more telling than the headline. The assessment of current conditions was unchanged at minus 3.3. The expectations component fell 5 points to 8.8. Respondents are not saying conditions have deteriorated. They are saying they expect them to.

Producer prices rose 1.9% month over month, matching forecasts and accelerating from 1.6%. That pipeline pressure will reach consumer prices over the coming months and keeps the inflation problem alive regardless of what happens to growth.

The currency did not respond to any of it. EUR/USD was below 1.1200 before the releases and remained there afterward. In a market driven by sovereign risk, activity data have little influence. Solid surveys did not help the euro, and weak ones would likely have hurt.

The growth picture does matter for the medium term. An economy expanding at this pace gives France a slightly better revenue outlook and gives the ECB room to tighten once the bond market settles. It argues against a repeat of 2011 and 2012, when the periphery was in recession.

Italy's second-quarter fiscal figures also improved, a reminder that the largest historical source of fragmentation risk is, for now, moving in the right direction.

The Dollar Side: Weak Payrolls, Firm Currency

The dollar's behavior since Friday is the other half of the story.

The September employment report from the Bureau of Labor Statistics showed 29,000 jobs added, a downward revision of August to 133,000 from 162,000, unemployment at 4.2% and participation at 61.8%. Average hourly earnings rose 3.0% on the year against 3.2% expected. On every measure the labor market is cooling.

The dollar index fell on the release and then recovered. It finished last week up 0.9% and trades at 102.17 on Monday, up 0.24% and near its high for the year. Fed officials have pushed back against a second consecutive hike, and market pricing for October has dropped below 20%. The currency has not followed.

Two forces explain the resilience. Treasury yields remain high, with the 10-year at 5.28% and the 30-year at 5.63%, so the dollar still offers the best carry among major currencies. And the global bond sell-off has produced a risk-averse mood in which the dollar is the default destination, particularly when the alternative reserve currency has a sovereign funding problem.

There is a vulnerability in that position. A dollar supported by policy tightening stands on solid ground. A dollar supported by rising term premium, which reflects concern over debt supply and fiscal sustainability, does not. Long-dated Treasury yields are approaching pre-financial-crisis highs because of issuance and inflation risk, not because the Fed is hiking aggressively. If attention shifts from Europe's fiscal position to America's, the dollar's three-week rally would lose its footing.

That shift has not happened. For now Europe's problems are the more acute, and the dollar is winning by comparison.

Monday's ISM services index, due at 10:00 a.m. ET with a consensus between 55.1 and 55.7, is the next test. Prices paid are forecast at 73.0 and employment at 49.0. A strong headline with firm prices would reinforce the dollar and push EUR/USD back toward 1.1161. A weak report would give the euro its first real chance of a bounce.

Wednesday brings the minutes of the September Fed meeting at 2:00 p.m. ET, per the Federal Reserve's calendar. Thursday has jobless claims and Friday the University of Michigan survey.

The broader point is that EUR/USD fell on a day when the U.S. data argued for a higher euro. When a currency pair ignores the fundamentals of one side, the other side is in control. This week that is the euro.

Rate Differentials: 185 Basis Points and a Broken Relationship

Interest-rate spreads have historically explained most of EUR/USD's direction. They still favor the dollar, though the relationship has changed.

At the long end, the U.S. 10-year yield of 5.28% stands 185 basis points above the German Bund at 3.43%. That gap was 173 basis points on October 1. It has widened by 12 basis points in three sessions, entirely because Bund yields fell 21 basis points as money left French debt for German. Safe-haven buying of Bunds is making the transatlantic spread worse for the euro at the same moment that French spreads are damaging confidence.

At the policy level, the Fed's target range sits 150 basis points above the ECB's deposit rate of 2.50%. With the Fed likely on hold in October and the ECB also expected to pause, that gap is stable through year-end. Two-year yields tell the same story, with the U.S. note at 4.79%.

Real rates sharpen the contrast. U.S. inflation is running below the policy rate, so real short-term rates are positive. In the euro area, a 2.50% deposit rate against 3.8% inflation leaves the real rate at minus 1.3%. Holding euros costs purchasing power. Holding dollars does not.

What has changed is which yields matter. For most of the year, a rise in European yields supported the euro because it signaled ECB tightening. Since late September, European yields have been rising for credit reasons in France and Italy and falling for haven reasons in Germany. Neither helps the currency. The average euro-area yield is higher, and the euro is lower.

This breakdown is a hallmark of fragmentation episodes. In 2011 and 2012, EUR/USD tracked peripheral spreads far more closely than it tracked Bund-Treasury differentials. The same regime appears to be taking hold, with France in the role Italy and Spain once played.

It also changes what a recovery requires. In a rates-driven market, a dovish Fed surprise lifts the euro. In a spread-driven market, it has limited effect, as Friday showed. The euro needs the OAT-Bund gap to narrow.

The differential that now best explains EUR/USD is the French-German spread, and at 147 basis points it is pointing lower.

Crosses Confirm a Euro-Specific Move

The clearest evidence that this is a euro story comes from the crosses.

Against sterling, the euro is down 0.33% on the day, and EUR/GBP is approaching its year-to-date low near 0.8450. The United Kingdom has fiscal concerns of its own ahead of a budget, and gilts have been under pressure. The euro is losing ground even against a currency with comparable problems.

Against the Swiss franc, the euro is down 0.44% on Monday and almost 2% since the start of October. The franc is the traditional refuge for capital leaving the euro area during periods of sovereign stress, and that flow was a defining feature of 2011. Its return is a warning.

Against the yen, the euro is down 0.58%, its largest loss among the majors, and 1% for the month. That is happening while the yen itself is weak against the dollar at 157.96. The reported liquidation of French bonds by a Japanese asset manager may be part of the flow, since selling euro-denominated assets and repatriating proceeds means selling EUR/JPY.

The euro is also lower against the Canadian dollar by 0.40%, with EUR/CAD near 1.5970, and against the Australian dollar by 0.44%. Only the New Zealand dollar, which has its own difficulties, is weaker on the day.

The dollar, by comparison, is mixed. It is up 0.46% against the euro and 0.41% against the New Zealand dollar, flat against the franc and Canadian dollar, and down against the yen and Australian dollar. A broad dollar rally would show gains across the board. This is a euro sell-off in which the dollar is one of several beneficiaries.

That distinction shapes the forecast. If EUR/USD were falling on dollar strength alone, a soft U.S. data point could reverse it. Because the weakness is on the euro side and visible in every pair, the recovery has to come from Europe.

It also points to where the cleaner trades lie. For those bearish on the euro and wary of the dollar's reliance on high Treasury yields, EUR/CHF and EUR/JPY offer exposure to the fragmentation theme without taking a view on U.S. data. For EUR/USD specifically, the crosses serve as confirmation. A day on which EUR/CHF stabilizes while EUR/USD falls would suggest the driver has shifted back to the dollar.

For the moment every cross agrees, and the direction is down.

Technical Structure: Oversold in a Confirmed Downtrend

The chart is bearish on every timeframe and stretched on the shortest.

On the daily chart, EUR/USD trades below all of its main moving averages. The 20-day exponential average is at 1.1448 and the 20-day simple average at 1.1462. The 100-day simple average stands at 1.1513. Price is 243 pips below the nearest of them, and all are falling. The 10-day average sits in the 1.1330 to 1.1355 zone, reinforced by the former low at 1.1312 and the broken 38.2% retracement at 1.1355.

On the weekly chart, the pair has lost its 100-week simple average at 1.1360 and is now 107 pips above the 200-week average at 1.1096. That long-term average, together with the 50% retracement of the 1.0177 to 1.2082 advance at 1.1130, forms the next major support zone.

On the four-hour chart, the pair is beneath its 100-period and 200-period averages. A bearish trend line descends through 1.1275. The latest swing ran from 1.1380 to 1.1166, and price has not yet recovered the 23.6% retracement of that move, a sign of how weak the bounce has been.

Momentum is at an extreme. The daily relative strength index fell to 21.8 last Thursday, recovered to 26 by Friday and has dropped below 30 again. Daily momentum has been negative for the entire month of September. Readings this low do not by themselves signal a reversal. In trending markets RSI can stay oversold for weeks. They do indicate that fresh shorts at current levels are entering late.

The pattern of the past week supports that caution. EUR/USD has made a series of lower lows at 1.1312, 1.1215 and 1.1161, with each bounce smaller than the last: 70 pips, then 65, then 45 so far. Sellers are appearing sooner on each rally.

Volatility has picked up. Daily ranges have expanded from 50 to 60 pips in mid-September to 90 to 100 pips this week.

The combination is a strong trend that is oversold directly above multi-year support. That setup typically resolves in one of two ways: a sharp short-covering rally of 100 to 150 pips that fails beneath broken support, or a final flush into the support zone followed by a larger reversal. Both paths lead lower before a durable bottom forms, and both make selling at the lows less attractive than selling a bounce.

The Level Map

Resistance begins at 1.1210, the level broken in Asian trading, and at 1.1250, which capped the pair in early European hours. The descending trend line on the four-hour chart is at 1.1260 to 1.1275. Above that, 1.1312 is the September 30 low, now resistance, and the 1.1330 to 1.1355 band holds the 10-day average and the 38.2% retracement. A recovery should stall beneath that band for the downtrend to remain in force.

Further up, 1.1360 is the 100-week average and 1.1380 the most recent swing high. The 20-day averages sit at 1.1448 to 1.1462, and 1.1475 and 1.1513 are the next references. A daily close above 1.1355 would be the first sign that the decline is exhausted. A close above 1.1380 would confirm it.

Support starts at 1.1161 to 1.1165, Monday's low. Below it, 1.1150 is a minor level, and a close beneath it would accelerate selling. The main zone runs from 1.1130, the 50% retracement, to 1.1096, the 200-week average. A break of 1.1100 exposes 1.1080 and 1.1065.

Beyond that lies the psychological 1.1000 mark. Under it, 1.0955 and the 61.8% retracement at 1.0905 are the next targets, followed by 1.0820.

From the current 1.1205, the nearest resistance band at 1.1260 to 1.1275 is 55 to 70 pips above, and the 1.1330 to 1.1355 zone is 125 to 150 pips above. The 1.1130 support is 75 pips below, the 200-week average 109 pips below and 1.1000 is 205 pips below.

A model-based daily range for Monday spans 1.1279 at the top to well below spot at the bottom, an indication that the pair is trading beneath where volatility models expected it.

For trade construction, the levels suggest waiting. A short entered at 1.1205 with a stop above 1.1280 risks 75 pips for 75 to 109 pips of reward to the support zone. A short entered at 1.1270 with the same stop risks 10 pips for 140 to 174. A short at 1.1330 with a stop above 1.1385 risks 55 pips for 200 or more.

Longs are counter-trend and should be treated as such. A buy at 1.1100 to 1.1130 with a stop below 1.1060 offers a defined-risk attempt at a bounce toward 1.1260, a reward of 130 to 160 pips against 40 to 70 of risk.

For holders of the euro currency trust (FXE), the 1.1130 and 1.1355 marks correspond to moves of 0.7% below and 1.3% above current levels.

Catalysts and Scenarios

The calendar is full, though the event that matters most is not on it.

Monday's ISM services report at 10:00 a.m. ET comes first. Tuesday has the U.S. trade balance. Wednesday brings the Fed minutes. Thursday is the busiest day for the euro, with the ECB's account of its September meeting at 11:30 GMT and U.S. jobless claims. Friday has the Michigan sentiment survey. Speeches from ECB and Fed officials run through the week.

The unscheduled driver is the French budget negotiation. Any sign of a deal, a confidence vote or a breakdown will move OAT spreads and the euro within minutes. Mid-October is the deadline for member states to submit budgets to Brussels.

The bearish scenario has spreads continuing to widen. The OAT yield crosses 5%, the gap to Bunds exceeds 160 basis points, and Italian and Spanish spreads follow. EUR/USD breaks 1.1150 and tests the 1.1096 to 1.1130 zone this week. A daily close below 1.1096 opens 1.1065 and then 1.1000. A strong ISM report or hawkish Fed minutes would speed the move. This path has the highest probability while there is no political resolution in Paris.

The corrective scenario is an oversold bounce. Spreads stabilize in the 140s, the ISM report is soft, and short covering lifts the pair to 1.1260 to 1.1275 and possibly 1.1312 to 1.1355. Sellers return there. This would be a pause within the trend and would improve entry levels for shorts. It is the most likely path if French bonds have a quiet week.

The bullish scenario requires a political event. A cross-party budget agreement in France, or a clear signal that the ECB stands ready to act, narrows the spread toward 120 basis points. Combined with fading Fed hike expectations and attention turning to U.S. fiscal risks, EUR/USD reclaims 1.1355 and targets 1.1450 to 1.1475. This has the lowest probability in the near term and the largest potential move, given how heavily the market is positioned short.

Across the three, the balance favors lower levels first. The fundamental driver is unresolved, the ECB is on hold, real rates are negative, and the crosses confirm broad euro weakness. The risk to that view is the speed of the move and the proximity of the 200-week average, which has not been tested since early 2025 and is where longer-term buyers are likely to appear.

The side that matters most this week is Europe. U.S. data will set the pace, and French spreads will set the direction.

Verdict: Bearish, Sell Rallies Toward 1.1260 to 1.1330, Target 1.1100

The forecast for EUR/USD is bearish. The pair is in a confirmed downtrend on daily and weekly charts, has broken its 100-week average and the 38.2% retracement of the 2025 rally, and made a fresh 17-month low at 1.1161 on a day when U.S. data argued for a rebound. The French-German spread at 147 basis points is the widest since 2012 and has no visible catalyst to narrow. The ECB has stepped back from an October hike with inflation at 3.8%, leaving real rates at minus 1.3%. The U.S.-German 10-year gap has widened to 185 basis points. The euro is falling against the franc, the yen and sterling, which confirms the weakness is its own.

The primary target is the 1.1096 to 1.1130 zone, where the 200-week average and the 50% retracement converge. That is 75 to 109 pips below the current price. A daily close beneath 1.1096 would extend the objective to 1.1065 and then 1.1000, a level that becomes realistic if the OAT yield moves decisively through 5%.

The call is to sell rallies and not to chase the lows. With daily RSI below 30 and bounces of 45 to 70 pips occurring every few sessions, shorts entered near 1.1161 risk being squeezed. The preferred entry zone is 1.1260 to 1.1275, the four-hour trend line, with a stop above 1.1285. A deeper recovery to 1.1312 to 1.1355 would be a second and better opportunity, with a stop above 1.1385.

The bearish view is invalidated by a daily close above 1.1355 and reversed by a close above 1.1380. Either would require a narrowing of French spreads toward 120 basis points, and that would be the signal to stand aside or turn constructive toward 1.1450.

The bull case breaks at 1.1096. Below it there is no technical support until 1.1065, and the long-term trend from the 2025 low would be in question.

For those looking to buy euros, patience is warranted. The 1.1100 to 1.1130 area is where a tactical long makes sense on first test, with a stop below 1.1060 and a target of 1.1260. It is a counter-trend trade and should be sized accordingly.

The rating is sell on EUR/USD, with rallies toward 1.1260 to 1.1330 used to establish or add to short positions and 1.1100 as the objective. The trend holds until France produces a budget that the bond market accepts.

That's TradingNEWS