FX OVERVIEW
Eurozone political and fiscal risk dominated FX, with France’s bond spread over Germany above 150 bps and unrest weighing on the euro. Elevated geopolitical risk and oil near $110 a barrel added to risk aversion, while delayed expectations for Fed rate cuts supported the dollar.
MAJOR PAIRS
EURUSD — The pair fell to around 1.1215 as French fiscal stress and political unrest drove demand away from the euro; a resilient dollar added pressure. The bias remains bearish below key moving averages, with 1.1100—the lower Bollinger band—flagged as critical support.
CENTRAL BANK WATCH
- ECB President Christine Lagarde stressed that France must address its problems domestically, offering no immediate support to the euro amid rising sovereign-risk concerns.
- The Fed remains cautious and data-dependent. Markets see an 83.9% probability of a rate hold and have pushed back expectations for rate cuts, supporting the dollar. No rate decision was reported today.
MACRO DRIVERS
- French sovereign risk: The French-German 10-year yield spread exceeded 150 bps, its highest level since 2011, raising concerns about wider eurozone fragmentation.
- Geopolitical risk and energy: Middle East and Ukraine-related supply threats lifted Brent to $110 a barrel, adding inflation risk and reinforcing demand for defensive assets.
- Risk aversion: The VIX reached a four-month high, while investors favored the dollar over the euro amid political and market uncertainty.
POSITIONING IDEAS
- Bearish: EURUSD — French fiscal and political stress is undermining the euro, while delayed Fed easing expectations support the dollar. A break below 1.1100 could invite further technical selling.