EUR/USD slipped to a fresh multi-month low on Monday as France's deepening fiscal crisis hit the single currency. The pair extends a four-week slide after a 2.5% drop in September, with chart support at 1.1130 and the psychological 1.10 level now in focus.
The euro fell as much as 0.8% to a 17-month low of $1.1160 in early Monday trading before recovering some ground to $1.1202. The move extends a steep four-week slide that followed a 2.5% loss in September, and EUR/USD remains in the red in early October.
French debt rout drives the sell-off
A sharp sell-off in French government bonds fanned fears that the euro zone's second-largest economy cannot handle its budget deficit. France's two-year yield surged almost 76 basis points to touch 4.467% before paring the move to 3.666%, while the French 10-year OAT yield eased to 4.834% after earlier hovering near 2002-era highs above 4.96%. The cost of insuring French debt against default also jumped, with five-year credit default swaps trading around 87 basis points — their highest since 2013.
Political uncertainty ahead of the 2027 election added to the negative picture, and the premium investors demand to hold French 10-year bonds over German debt surged above 150 basis points on Friday, fueling concerns of broader contagion. According to Investing.com, Saxo strategist Neil Wilson said: "France is the real deal in terms of risk premia for the euro", noting that government deficit-reduction plans still face parliamentary scrutiny. Safe-haven flows meanwhile anchored German Bunds, whose 10-year yield hovered near one-month lows after touching 3.475% late last week.
Technical picture stays bearish ahead of 1.10
Momentum on the daily chart has stayed negative through the month, though a deeply oversold RSI suggests bears may take a breather ahead of strong support at 1.1130, the 50% retracement of the 1.0177/1.2082 range, and 1.1098, the 200-week moving average. Consolidation should ideally stay capped under the 1.1330/1.1355 zone to keep sellers in control for an attack on the 1.1130/1.1100 target zone. A break below that would expose the psychological 1.1000 support.
Fed rate-cut bets offer some cushion
The euro's slide lent fresh support to the dollar, which also drew strength from elevated Treasury yields; the dollar index rose 0.3% to 102.217. Still, easing bets on a Federal Reserve rate hike helped cushion broader sentiment after weak September labor data. Investors now see an 18% chance of a Fed rate increase this month, down from 64% a week ago, according to CME FedWatch data, though a December move remains largely priced in.
Sources: ActionForex, Investing.com (Reuters), Investing.com
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