The EUR/USD exchange rate stood at 1.1144 at 16:02 on Tuesday, reflecting a decline of 0.26% from Monday’s closing figure of 1.1174, as the euro continued its downward trajectory for the fifth consecutive session. The pair’s daily range extended from 1.1181 during the Asian session to a low of 1.1135 in the New York morning, creating a 46-pip band that brought the euro within 22 pips of its 52-week low at 1.1113. Nothing about the tape indicates that buyers are gearing up for a defence: every effort to maintain levels between 1.1175 and 1.1190 during the European session was unsuccessful, and the pair declined further following the U.S. data release at 12:30. The broader picture appears unfavourable for the single currency. The EUR/USD exchange rate has declined by 5.12% since the beginning of the year and by 4.18% over the last year, currently positioned 7.8% beneath its 52-week peak of 1.2083. The pair averaged 1.1610 from January through September, indicating that the current spot is 466 pips below its own 2026 average. October has exhibited a consistent downward trajectory: the month’s peak was recorded at 1.1267, while the weekly range last week fluctuated between 1.1175 and 1.1255. The pair concluded Friday at 1.1202, following France’s 10-year borrowing premium over Germany reaching its most extensive spread since the 2011 sovereign debt crisis. The euro is depreciating universally, not solely in relation to the dollar. On Tuesday, it experienced a decline of 0.54% relative to the Australian dollar, 0.60% in comparison to the New Zealand dollar, 0.15% against the Swiss franc, and 0.09% versus both sterling and the yen. A currency that underperforms against every major counterpart simultaneously indicates an underlying domestic issue, and in this instance, that issue is identified as France.
The dollar side of the trade is exerting pressure. The U.S. Dollar Index was at 102.20 on Tuesday, approaching a two-week high, following a decline to 101.45 last week, which marked its lowest point since October 1. Durable goods orders increased by 1.8% in September, consumer confidence surged to 91.7, and the U.S. economy continues to surpass Europe across all high-frequency indicators. This week features two consecutive decisions from central banks. The Federal Reserve is set to announce on Wednesday at 18:00, with a hold at 3.75%-4.00% priced above 90% and a December hike nearly fully priced in. The European Central Bank is scheduled to meet on Thursday at 13:15, with a consensus among major forecasters anticipating a maintenance of the deposit rate at 2.50%. The thesis for this article is straightforward: the divergence in monetary policy, with the Federal Reserve continuing to raise rates toward 4.25% while the European Central Bank remains on hold at 2.50%, coupled with a French risk premium reminiscent of 2011, positions EUR/USD with a clear trajectory. This trajectory leads through 1.1113 toward 1.1000. The session adhered to a pattern that has been consistent throughout the week. The EUR/USD pair commenced the Asian session at approximately 1.1174, subsequently reaching a peak of 1.1181, marking the day’s high, as Asian equity markets experienced a rally driven by optimism surrounding AI and an increased risk appetite that bolstered commodity currencies. That move exhausted its pool of buyers prior to the European open.
European trading initiated the initial decline. By 07:00, the pair had declined to 1.1166, a decrease of 0.39% from Monday’s late close, and it fluctuated between 1.1160 and 1.1180 over the subsequent three hours. French government bond yields remained high following a tumultuous week, while the CAC 40 lagged behind regional indices, maintaining a political risk premium on every euro bid. In the absence of new eurozone data, traders opted to maintain their positions without alteration as they approached the U.S. session, refraining from purchasing on the dip. The break occurred at 12:30. The U.S. Census Bureau’s advance durable goods report indicated that new orders increased by 1.8% in September, reaching $345.4 billion. This marks the most significant monthly gain in five months, following a modest rise of 0.1% in August. The headline arrived marginally beneath the 2.0% projection; however, the underlying details remained robust. Orders excluding transportation increased by 0.5% to $225.6 billion, while nondefense capital goods excluding aircraft, considered the most accurate indicator of business investment, also rose by 0.5% to $88.04 billion. Orders for computers and related equipment increased by 3.9% month-over-month and have risen 20.3% year-to-date, driven by investments in AI. Orders for nondefense aircraft increased by 28.4%. The dollar experienced an immediate uptick, leading to a decline in EUR/USD as it fell through the support levels of 1.1175 to 1.1190. At 14:00, the Conference Board’s consumer confidence index recorded a figure of 91.7, surpassing the forecast of 81.0, marking its highest level since June. That second upside surprise extended the dollar’s gains, leading to a decline in EUR/USD, which fell to 1.1135, marking its low of the day.
By 15:50, the pair was trading at 1.1145, down 0.26%, and by 16:02 at 1.1144. The U.S. session validated the indications from Europe: there was a lack of buyers prepared to confront a strengthening dollar just two days ahead of consecutive central bank decisions. The intraday structure is significant for the forecast. The pair encountered resistance at 1.1181 during the Asian session, faced another setback at 1.1180 in Europe, and subsequently breached support following the release of U.S. data. That represents a series of declining peaks leading into a descending support level, which has occurred in four of the last five sessions. The dollar side of EUR/USD is supported by a Federal Reserve that remains in a tightening phase. The FOMC raised its target range by 25 basis points in September to 3.75%-4.00%, and it commenced its two-day meeting on Tuesday with fed funds futures indicating a hold at a probability exceeding 90%. The decision is set to be announced on Wednesday at 18:00, followed by Chair Kevin Warsh’s press conference at 18:30. At this meeting, the absence of a Summary of Economic Projections means that the language of the statement and Warsh’s responses will assume significant importance. The market appears to be anticipating developments beyond October. A December hike to 4.00%-4.25% is nearly fully priced in, with every economist in a prominent survey anticipating it. Markets are currently pricing in no rate cuts for 2026, anticipating the first easing no earlier than spring 2027. For the euro, this indicates that the dollar’s yield advantage is not at its zenith; it continues to expand.
The U.S. data flow provides Warsh with no justification to adopt a more lenient stance. In September, the Consumer Price Index experienced a year-over-year increase of 3.7%, surpassing the anticipated 3.6%. The core CPI registered at 2.6%. The Fed’s preferred PCE gauge increased by 3.4% in August. Initial jobless claims decreased to 194,000 in the week ending October 17, marking the lowest level since late July. The U.S. flash composite PMI for October remained close to a five-year peak, with selling prices increasing at the most rapid pace since August 2022. Durable goods orders experienced an increase of 1.8% in September, while consumer confidence surged by 7.5 points, reaching a level of 91.7. The energy shock stemming from the U.S.-Iran conflict is a significant factor influencing the inflation narrative. Brent crude was observed trading below $114 on Tuesday, following a settlement at $116.72 on Monday. Meanwhile, the national average petrol price was recorded at $4.27 a gallon, compared to $3.05 a year prior. Higher oil prices exert a more pronounced impact on Europe, given its status as a net energy importer, while simultaneously contributing to inflationary pressures in the U.S. In response, the Federal Reserve has opted for interest rate hikes instead of adopting a more patient approach. The scenarios for EUR/USD are distinctly outlined. A hold with neutral language that emphasises data dependence would alleviate pressure on the euro and may initiate a short-covering bounce toward 1.1190 to 1.1215. A hold with explicit guidance toward December would extend the dollar’s gains and push the pair through 1.1113. A surprise hike, priced at under 10%, would propel EUR/USD toward 1.1050 within hours. The prevailing sentiment in the room leans toward a hawkish stance. Warsh has devoted the autumn to cautioning that inflation requires additional measures, and the data following the September increase has corroborated that position. EUR/USD bulls should not anticipate a dovish offset from Washington on Wednesday.
