The euro is headed for its fifth consecutive weekly decline on Friday, though selling pressure appears to be moderating according to Reuters. The common currency had hit a 17-month low of $1.1161 on Monday amid market concerns about France's record high debt load and difficult political path to budget cuts. However, the euro has since recovered to trade at $1.1198, representing a weekly fall of 0.5% and a five-week drop of more than 3% on the dollar. The decline comes as oil prices fluctuated significantly, with US crude rising 0.6% to $92.04 a barrel after falling as low as $90.01, while Brent advanced to $104.88 per barrel, up 0.58% on the day. As per The Economic Times, the euro was last down 0.1% at $1.1198, with recent selling pressure being muted as France's beleaguered bond market steadied. EUR/USD is consolidating around the 1.1200 level, close to a 17-month low against the U.S. dollar, and appears vulnerable to extending the downtrend seen over the past month.
According to KBC, euro weakness has taken over from dollar strength as the main driver, with a hawkish Federal Reserve starting the drop in mid-September but European problems carrying it further. France sits at the center of the crisis, as the gap between French and German 10-year yields has widened to levels last seen in the 2012 debt crisis, as investors doubt the 2027 budget. The stress is spreading across Europe, with Italy planning a wider deficit while Spain heads to a snap election on November 29. Meanwhile, the Fed raised rates in September and signaled another hike this year, with even a weak payrolls print of 29,000 jobs lifting the euro for only a day. Brent crude above $100 lifts inflation while threatening growth, adding to the euro's challenges. As Jane Foley, head of FX strategy at Rabobank, noted: 'The euro hasn't been able to get traction.'
On the weekly chart, the euro was rejected from the 1.18 resistance zone and is now falling toward the 0.382 Fibonacci retracement at 1.1110, a former ceiling that turned into support in May 2025. If that level breaks, 1.08 comes next, with the 0.618 golden pocket at 1.0509 and an ascending trendline from 2022 rising toward the area near 1.07. The Relative Strength Index (RSI) stands at 34 and is still falling, though it is nearing a support line that has held since 2022. A bounce from it could bring the euro back up against the dollar. The daily chart tells a more bearish story, with the pair printing lower highs and lower lows since January inside a descending parallel channel. The 20-day moving average has repeatedly rejected retests from below, each time leading to another lower high, and has not been tested since September, now sitting near 1.13. The channel's lower band runs near 1.10, slightly below the 0.382 Fibonacci level.
The dollar's moves were small and gains slowed as US yields headed for their biggest weekly drop in about three months, as reported by Reuters. The yen headed for a fourth straight weekly drop, though moves in the last three weeks have been very small as it has steadied around 158 yen to the dollar. Vishnu Varathan from Mizuho Securities noted that the dollar sits in a 'precarious pole position, flattered by a dismal euro and yen.' The dollar remains strong, trading around an 18-month high, supported by elevated Treasury yields and the Fed's relatively hawkish stance compared with the ECB. The Australian dollar hovered at $0.6960 and sterling at $1.3233. This week, the key focus will be on U.S. CPI data on Wednesday and PPI figures on Thursday, with higher-than-expected inflation potentially boosting the U.S. dollar.
Banks remain split on euro direction, with MUFG seeing 1.10 if French spreads keep widening, while ABN AMRO targets 1.15 by year-end. US inflation data on October 14 and the Fed and ECB meetings on October 28 and 29 could decide the next move for the euro. On Friday, the University of Michigan's Surveys of Consumers showed US consumer sentiment slumped further in early October as the rising cost of living because of the Middle East conflict soured households' views of the economy. While many Fed officials have indicated more rate hikes will be needed to curb inflation, others have pushed back on the need for immediate hikes, and suggested the Fed should be patient and flexible in deciding the rate path. Risk premiums on French and Italian government debt were on track for a weekly decline after jumping in late September, as investors looked for fresh developments before demanding higher compensation for fiscal and political risks.
