• EUR/USD weakens to near 1.1210 in Friday’s early European session.
• Premium investors demand to hold French government debt over German Bunds widened to its highest in 15 years on Thursday.
• Negative outlook for the pair prevails under the key 100-day SMA.
• The first upside barrier emerges at 1.1235; the initial support level to watch is 1.1185.

The EUR/USD pair trades in negative territory around 1.1210 during the early European trading hours on Friday. Worries about France’s ability to tackle its huge debt burden have hurt French government bonds and exert some selling pressure on the Euro (EUR) against the US Dollar (USD).

France’s benchmark 10-year government bond yield climbed 6.5 basis points to 5.06%, after briefly reaching 5.1415%, its highest level since July 2002. Meanwhile, the spread over German Bunds widened to 177.7 bps, the largest gap since November 2011 during the eurozone debt crisis, highlighting growing investor concerns over France’s fiscal outlook.

French government promised a significantly expanded security operation for further planned protests on Saturday, with troops expected to be deployed alongside additional police.

“Political gridlock and public anger over the high cost of living are making it virtually impossible to repair public finances ahead of next year’s French presidential election,” said Elias Haddad, senior markets strategist at Brown Brothers Harriman & Co.

The European Central Bank (ECB) is expected to hold its benchmark rate at 2.5% next week, though a hike is all but priced in before the year’s end, according to Reuters.

Rabobank sees ECB pausing in October before a final December hike

Analysts at Rabobank argue that “the ECB’s tightening cycle may not be over, but the next rate hike will probably not materialise this month,” with the central bank expected to “hold policy unchanged, leaving the deposit rate at 2.50%.” They note that “inflation risks are still to the upside, but they have not meaningfully increased,” while “tighter financial conditions amplify the ECB’s rate hikes somewhat,” reducing the need for immediate further action.

Rabobank judges that “so far, the ECB has managed the inflation and growth risks of the energy shock well. They tightened proactively, but gradually.” In their view, “the persistence of inflation risks implies that the ECB maintains this trajectory, and we believe that the next (and final) step will follow in December.”

For now, the bank sees “no compelling reason to accelerate the pace of hikes.” It stresses that “there is no evidence yet that inflation is becoming more broad-based and entrenched,” even if “some policymakers will argue that the ECB cannot wait for clear evidence of second-round effects, because they would have to intervene more strongly after these dynamics start.”

Against this backdrop, Rabobank concludes that “developments in financial markets both allow and require the ECB to take some additional time to evaluate its next steps.” They “don’t think that the recent tightening of financial conditions is strong enough to prevent another rate hike,” but caution that “market pricing of three more hikes still seems aggressive – not in the least part because favourable base effects should lessen energy inflation in early 2027.”

Warsh flags investment surge and AI risks but keeps Fed path data-dependent

Fed Chair Warsh’s speech scores 5.6/10 on the FXS Speechtracker, modestly below the 6.1/10 historical average, signaling a slightly less impactful but still broadly consistent message relative to the established baseline. The admission of being “over-scarred” by the global financial crisis underscores a cautious bias even as Warsh highlights structural growth and an investment surge driven by “good policies,” while stressing that upcoming October and December meetings will “crystalize” decisions on output, employment, and inflation without pre-committing to the policy path. Warsh’s focus on AI as a demand-side force with uncertain near-term employment effects, and as a tool to strengthen data and monetary policy, adds a forward-looking, risk-aware tone that tempers optimism about the investment boom.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a level of 127.51, which keeps the overall stance firmly in hawkish territory despite the slightly softer FXS Speechtracker score. The steady, elevated index reading suggests that markets still interpret Warsh’s emphasis on price stability, structural growth, and investment surge as consistent with a bias toward tighter policy, even as the Fed weighs AI-related and financial stability tail risks.

Technical Analysis: EUR/USD maintains a negative outlook below the 100-day SMA

In the daily chart, EUR/USD retains a bearish near-term bias as spot remains under the 100-day simple moving average (SMA) and below the Bollinger middle band. Price is holding within the lower half of the Bollinger envelope, while the Relative Strength Index (14) around 38 stays below the neutral 50 line, which suggests lingering downside pressure rather than an immediate recovery.

On the topside, initial resistance level emerges at the Bollinger middle band near 1.1235, en route to a stronger cap at the upper Bollinger band around 1.13445. Any follow-through buying above this level could see a rally to the 100-day SMA at 1.1451 reinforcing a broader supply zone higher up. 

On the downside, the October 19 low of 1.1185 acts as an initial support level for the pair, followed by the lower limit of Bollinger band at 1.1125. A clear break below this area would open the door to the May 12, 2025 of 1.0951.