• EUR/USD softens to near 1.1230 in Monday’s early European session.
• Fiscal and political risks in Europe are still in focus.
• The pair keeps a bearish vibe below the key 100-day SMA.
• The first downside target to watch is 1.1151; the immediate resistance level is seen at 1.1270.

The EUR/USD pair trades in negative territory around 1.1230 during the early European trading hours on Monday. Fiscal risks in France and political instability in Europe exert some selling pressure on the Euro (EUR) against the US Dollar (USD). European Central Bank (ECB) Executive Board member Frank Elderson is set to speak later in the day.

France had the broadest of a series of demonstrations that took place across Europe, with Belgium, Italy and Portugal also affected. Young people have been taking to the streets to protest over their unhappiness at the state of schools and the wider cost of living crisis, per the Guardian. The escalating widespread protests could place downward pressure on the shared currency in the near term.

On the other hand, fading expectations for a Federal Reserve (Fed) rate hike might cap the downside for the pair. Fed Chair Kevin Warsh voiced optimism about US economic strength but gave no clues about the US rate-path trajectory.

Markets assign an 83.9% odds to ‌the Fed keeping rates unchanged later this month, up from 49% a month earlier, the CME FedWatch Tool showed.

Euro underpinned as spreads narrow and EURUSD eyes bullish weekly reversal

Strategists at Scotiabank observe that the Euro’s sensitivity to bond markets remains uneven, noting that “the EUR’s relationship with Eurozone sovereign spreads tends to be episodic and other factors appear to be a more significant influence on FX currently.” They highlight that Fed Chair Warsh’s “dovish by omission comments on the policy outlook earlier have allowed for a minor narrowing in front-end EZ/US spreads and lifted the EUR.”

On the policy front, Scotiabank judges that “at the margin, OAT tensions help tilt ECB risks away from hiking at the end of the month but are unlikely to influence the December decision (a 25bps hike is all but fully priced in).” The bank adds that “we estimate EURUSD fair value at 1.1285.”

From a technical perspective, Scotiabank describes the outlook as “bullish,” pointing to “a solid rebound from long-term retracement support in the low 1.11s (50% retracement of the EUR’s 2025/26 rally from the 1.01 area) earlier this week and gains through noted resistance at 1.1240/50” that “are setting the EUR up for a potentially bullish weekly reversal.” The analysts stress that “this will be contingent the EUR sustaining late week gains through the close of business today,” with “intraday support is 1.1245/50” seen as a key near-term reference.

Warsh flags investment surge and AI demand risks while avoiding policy pre-commitment

Fed Chair Warsh delivered a moderately constructive but cautious message, with a 5.6/10 FXS Speechtracker score undershooting the 6.1/10 historical average and signaling slightly softer conviction relative to the established baseline. The acknowledgment of being “over-scarred from the global financial crisis” underscores a persistent risk-averse bias even as Warsh highlights a structural growth and investment surge driven by “good policies,” while refusing to pre-judge the October and December meetings keeps the Dollar sensitive to incoming data. Warsh’s emphasis that AI will hit the demand side before the supply side, alongside uncertain near-term employment effects, points to upside growth and inflation risks that could ultimately justify a firmer policy stance if data cooperate.

The FXS Fed Sentiment Index was unchanged on the speech, with a 0.00-point move leaving the index at 127.51, firmly in hawkish territory despite the slightly below-baseline tone score on the FXS Speechtracker. The steady, elevated index level suggests markets see Warsh’s caution and focus on financial stability and AI-related tail risks as consistent with a Fed that remains biased toward restrictive policy rather than an imminent dovish pivot.

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

In the daily chart, EUR/USD keeps a bearish near-term tone as spot holds below the 100-day Simple Moving Average (SMA) and even the Bollinger Bands’ 20-day middle line. The pair is sliding along the lower half of the Bollinger envelope, while the Relative Strength Index (14) around 40 hints at weak, rather than oversold, downside momentum that still favors sellers while the price remains capped by these overhead averages.

On the downside, the initial support level emerges at the October 15 low of 1.1151, followed by the lower limit of Bollinger band near 1.1105. A break below this level would open the way to the May 21, 2025 low of 1.1050. 

On the topside, the first resistance level is seen at the Bollinger 20-day middle band near 1.1270. Further barriers is located at the July 28 low of 1.1353, en route to the upper boundary of Bollinger band around 1.1440, en route to the 100-day SMA at 1.1465, which together define a broader supply zone.