The EUR/USD exchange rate continued its strong sell-off today, reaching its lowest level in 17 months as concerns about the European fiscal health accelerated. It tumbled to 1.1162, down by over 4.67% from its highest point in September, with focus now shifting to the upcoming Federal Reserve minutes.
Euro drops as Europe’s fiscal health struggles
The EUR/USD pair tumbled sharply as investors remained concerned about Europe’s fiscal health. Recent data shows that government bond yields have surged in the region. In France, the ten-year yield jumped to a multi-year high of 4.99% last week. Similarly, in Germany and other countries, yields have continued rising.
The pair is also falling as Pedro Sanchez, the Spanish Prime Minister, considers calling for an early election after losing a crucial housing vote. According to Bloomberg, the cabinet and other high-ranking government officials support calling for an early election. This comes at a time when France has seen substantial protests in the past few weeks. In a note, a Lombard Odier analyst said:
“Bond and currency markets are clearly signaling investor discomfort about the rising instability of the French government and erosion in the country’s fiscal anchor ahead of the elections in 2027.”
These developments come at a time when many European countries are struggling, with the European Central Bank (ECB) predicting that it will grow by 0.9% this year. That growth will be much lower than the current inflation rate, which has remained above 2% amid the US-Iran crisis.
FOMC to publish minutes of last meeting
The next important catalyst for the EUR/USD pair will be the upcoming minutes of the last meeting by Federal Reserve. These minutes, which will come out on Wednesday, will provide more hints on what to expect in the coming meeting.
However, these minutes will likely have a mild impact on the pair because the situation has changed substantially since the last meeting. For example, a report released last week showed that the core Personal Consumption Expenditure (PCE) softened in August.
Another report released on Friday showed that the economy created just 29,000 jobs last month, much lower than the expected 90,000. The unemployment rate rose to 4.2% during the month.
Therefore, these numbers mean that the Fed will not have an incentive to hike rates again this year as analysts expected.
EUR/USD technical analysis
The weekly chart shows that the EUR/USD pair has slumped in the past few weeks. It has already crashed below the important support level of 1.1391, its lowest level in July last year and March and April this year. Moving below that level confirmed the bearish breakout.
The pair has now moved to the 38.2% Fibonacci Retracement level. It also slumped below the 50-week moving average, while the Supertrend indicator has turned red. Therefore, the path of the least resistance for the pair is bearish, with the next key target to watch being the psychological level of 1.100.