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Published: 29 October 2026,11:20
Daily Market Analysis New
*Political unrest and budget uncertainty have widened French-German bond spreads to eurozone debt-crisis levels, weighing on investor confidence and the EUR.
*The ECB is widely expected to hold rates at 2.50%, as policymakers assess inflation and previous tightening. A cautious stance could leave the euro vulnerable to policy divergence.
*Persistent French political instability and widening fiscal concerns may extend EUR weakness, while stabilising bond spreads or improved inflation signals could provide temporary relief.
The euro continues to face significant headwinds from political upheaval and social unrest in France, the eurozone’s second-largest economy. Persistent protests over living costs and public services, combined with difficulties in advancing fiscal consolidation, have driven French government bond yields higher and widened spreads over German bunds to levels reminiscent of the sovereign debt crisis. These developments have heightened concerns about fiscal sustainability and spillover risks across the currency bloc, weighing on investor confidence in the single currency.
Today’s European Central Bank policy decision adds another layer of uncertainty. The Governing Council is widely expected to leave the deposit facility rate unchanged at 2.50 percent following the September increase, allowing time to assess the impact of earlier tightening amid elevated energy prices and the tighter financial conditions stemming from the French bond market stress. Markets will closely parse the accompanying statement and President Christine Lagarde’s press conference for any signals on the December meeting or acknowledgment of the fiscal challenges in France. A neutral or cautious tone that downplays the need for further near-term hikes could reinforce euro weakness, while firmer language on inflation risks might offer limited support.
In the near term, the euro is likely to remain under pressure as French political and fiscal risks persist. Any failure to stabilize bond spreads or renewed social tensions could extend the currency’s underperformance against G10 peers. Relative policy differentials with the Federal Reserve and other major central banks will also influence price action, particularly if the ECB’s pause is perceived as lagging behind peers. While a constructive shift in French developments or stronger-than-expected data could provide temporary relief, the immediate outlook favors continued caution and potential further downside until clarity emerges on both domestic political stability and the ECB’s forward guidance.
Technical Analysis
EUR/USD initially showed signs of a potential bullish reversal, but the setup weakened after the pair broke below its recent consolidation range, signalling that bearish momentum remains dominant. The subsequent decline toward its previous low near 1.1100 further reinforces the bearish bias, suggesting that sellers continue to maintain control of the pair’s price action.
Should selling pressure intensify, EUR/USD could extend its decline toward the psychological support level at 1.1000 in the next leg. However, a recovery back above the former consolidation range would be needed to signal a potential easing of bearish momentum.
Resistance Levels:1.1260, 1.1370
Support Levels:1.1086, 1.1000
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