EUR/USD started the week on the back foot, slipping below 1.1700 as renewed political jitters in France weighed on the Euro (EUR). The move came alongside a rebound in the Greenback, with the US Dollar Index (DXY) pushing past 98.00 to multi-day highs, helped by firmer US Treasury yields across the curve and a pronounced political-led depreciation of the Japanese Yen.
Politics back in focus
France’s political turbulence once again grabbed the spotlight. President Emmanuel Macron turned to his outgoing prime minister, Sebastien Lecornu, asking him to hold talks with rival parties and look for a way out of the crisis.
The twist? Lecornu had resigned just hours earlier, after unveiling his cabinet , which was the shortest-lived government in modern French history. Despite that, Macron wants him to stay on temporarily and lead discussions until Wednesday in hopes of finding some stability.
Central banks staying cautious
Over in the US, the Federal Reserve (Fed) cut rates by 25 basis points on September 17, acknowledging a softer labour market but warning that inflation remains “somewhat elevated.”
The Fed’s dot plot leaned dovish, signalling another 50 basis points of easing before the end of the year, followed by smaller cuts stretching into 2026–27. Growth forecasts edged up to 1.6%, unemployment stayed at 4.5%, and inflation projections were unchanged.
Not everyone agreed: incoming governor Stephen Miran pushed for a deeper half-point cut but didn’t win support.
At his press conference, Chair Jerome Powell pointed to slower job creation, softer household spending, and inflation readings of 2.7% (headline PCE) and 2.9% (core). He noted that tariffs are keeping prices sticky, though services inflation is easing. Powell described the balance of risks as “more balanced,” suggesting the Fed is nearing a neutral stance rather than beginning a full-blown easing cycle.
When he spoke again on September 23, Powell underscored the Fed’s balancing act: inflation could flare up again, even as a weaker labour market weighs on growth.
In the old continent, the European Central Bank (ECB) opted to hold steady in September, keeping its meeting-by-meeting approach.
Policymakers said inflation remains on track to converge to the 2% medium-term goal. Core inflation is expected to average 2.4% in 2025 before easing to 1.9% in 2026 and 1.8% in 2027.
President Christine Lagarde said policy is currently in a “good place” and that risks are broadly balanced, stressing once again that future moves will depend squarely on incoming data.
Trade frictions simmering in the background
Trade remains a key wildcard. Washington and Beijing have agreed to a 90-day truce that’s helped cool tensions, but tariffs are still in place: the US maintains 30% duties on Chinese imports, while Beijing keeps 10% on US goods.
The US and EU also reached a partial deal: Brussels lowered tariffs on US industrial products and opened more access for American agricultural and seafood exports. In exchange, Washington imposed a 15% tariff on most EU imports. The big unresolved question is autos, with the threat of new tariffs still hanging over the sector.
Market sentiment turning cautious
Traders have grown more careful with Euro exposure. Commodity Futures Trading Commission (CFTC) data for the week ending September 23 showed net longs falling to 114.3K contracts, the lowest since July. Institutional net shorts narrowed slightly to 165.8K contracts, while open interest climbed to a two-week high of 859.2K contracts.
Technical picture
EUR/USD remains stuck in a range bound theme, with the immediate barrier just beyond the 1.1900 barrier. In the meantime, the pair’s bullish view remains unchanged while above its key 200-day SMA at 1.1195.
On the upside, the next resistance lines up at the 2025 ceiling of 1.1918 (September 17). Once the pair clears this level, it could then prompt a test of the psychological 1.2000 round level to emerge on the horizon.
On the other hand, a drop below the weekly base at 1.1645 (September 25) could open the door to a move to the temporary 100-day Simple Moving Average (SMA) at 1.1621, followed by the weekly floor at 1.1574 (August 27) and the August trough at 1.1391 (August 1).
Momentum indicators hint at further weakness: the Relative Strength Index (RSI) drifts lower toward the 48 region, suggesting room for extra correction. Furthermore, the Average Directional Index (ADX) around 12 is indicative of a weak trend.
EUR/USD daily chart
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What could tip the balance
EUR/USD might have some room to rebound, but a clear catalyst is missing. A dovish surprise from the Fed, weaker demand for US assets, signs that the ECB is comfortable holding steady, or a breakthrough on trade could all shift sentiment and give the pair a lift.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
