The Euro rebounded after falling below the middle channel! The 1.1600 neckline became a "lifeline", marking the end of the five-wave decline and the beginning of a rebound?
2025-10-08 21:01:18
The euro remained under pressure against the US dollar during Wednesday's European trading session. Following a drop of approximately 0.5% on Tuesday, the exchange rate continued to decline, dipping to around 1.1600, a drop of -0.44%. It has since rebounded to around 1.1635, narrowing its losses to -0.18%. Technically, sellers are likely to continue to dominate the market in the short term. ECB President Mueller stated in the afternoon that current inflation levels are within our target range, reducing the likelihood of a near-term interest rate hike. Furthermore, the factors currently weighing on the euro are summarized below.
On Wednesday morning, France's outgoing Prime Minister Sebastien Le Cornu said he was optimistic about reaching a budget agreement before the end of the year. This statement effectively eased market concerns about France's early general election.
After meeting with conservative and center-right parties, Le Cornu told reporters: "All parties have a consensus that they hope to finalize France's annual budget plan before December 31 this year." Although this news development has helped the euro to maintain its current price to a certain extent, as of now, there has been no clear signal to support the euro to start a stable rebound.
Eurozone government bond yields fell, with the spread between French and German 10-year government bonds narrowing to 85 basis points. The market continued to pay attention to the political developments in France.
Germany's industrial output fell 4.3% in August, far worse than the expected 1% drop. The German Ministry of Economy: Germany's unemployment rate is expected to rise to 6.3% this year, then fall to 6.2% in 2026 and further to 6.0% in 2027. The German economic growth forecast for 2025 was raised to 0.2% from the previous 0%. German GDP is expected to grow by 1.3% in 2026 and 1.4% in 2027.
European Central Bank President Christine Lagarde pointed out that any plan to use frozen Russian assets to support Ukraine must strictly comply with the framework of international law. Currently, the European Commission has proposed to use 170 billion euros of frozen assets, invest them in zero-interest EU bonds guaranteed by EU member states, and provide the resulting funds to Ukraine in the form of compensation loans.
Lagarde stressed that all relevant operations must fully comply with international rules to maintain the euro's international reputation and attractiveness to investors; in addition, the decision must be unanimously agreed upon by all relevant parties holding Russian assets.
The Austrian government supports the European Commission's proposal, but is still waiting for specific legal text to conduct a compliance review.
The European Commission believes it has found a viable solution that balances the need to avoid asset expropriation with support for Ukraine. To provide compensation loans to Ukraine, the Commission is considering adjusting the sanctions mechanism. Currently, sanctions are renewed every six months, a cycle that may not guarantee the long-term stability of the loans. The EU is also exploring the possibility of moving beyond the unanimous decision-making principle to implement the solution.
Meanwhile, recent drone incidents have continued to escalate across Europe, with Denmark and Germany reporting sightings of drones in their respective countries. Regarding the October 2nd incident of an unidentified drone over a Belgian military base, European Commission President Ursula von der Leyen stated that the Belgian Ministry of Defense is currently investigating the incident. These drone incidents signal a worrying trend in the current escalation of various threats. These drone incidents and other airspace violations are, in essence, a systematic effort to divide the EU and weaken support for Ukraine.
Europe is facing a direct challenge from hybrid conflicts. We must clearly hold those responsible accountable and must not shy away from this core issue.
On Tuesday, the US dollar index showed an overall strengthening trend. Although the US appropriations bill vote failed again, the market ignored the news, which ultimately pushed the euro down further against the US dollar.
U.S. Senate Majority Leader John Thune has made it clear that he will repeatedly submit the same version of the appropriations bill, a stance that suggests the likelihood of reaching a budget agreement in the short term is extremely low. Meanwhile, the White House Office of Management and Budget has reportedly issued a memorandum stating that 750,000 federal workers forced to take leave will not receive back pay.
Although the negative impact of the uncertainty caused by the US government shutdown on the US dollar is gradually fading, it should be noted that if the shutdown lasts too long, resulting in the continuous postponement of the release of key economic data, investors may be cautious about further betting on the appreciation of the US dollar, thereby curbing the dollar's rise.
The euro has fallen below the middle line of its descending channel against the dollar over the past two days, simultaneously breaking below its rising trendline. This has vented bearish sentiment, and the exchange rate has rebounded above 1.1600, finding support at the neckline of the August 6th bottom. Meanwhile, the exchange rate has completed a simple five-wave decline from the September 17th high of 1.1918. The euro is expected to initiate a volatile rebound around the 1.1600 neckline. However, the overall downward trend remains intact, with resistance remaining at the orange rising trendline in the chart.
(Euro/USD daily chart, source: Yihuitong)
At 20:55 Beijing time, the euro is trading at 1.1633/34 against the US dollar.
The political situation in France does not provide clear guidance
On Wednesday morning, France's outgoing Prime Minister Sebastien Le Cornu said he was optimistic about reaching a budget agreement before the end of the year. This statement effectively eased market concerns about France's early general election.
After meeting with conservative and center-right parties, Le Cornu told reporters: "All parties have a consensus that they hope to finalize France's annual budget plan before December 31 this year." Although this news development has helped the euro to maintain its current price to a certain extent, as of now, there has been no clear signal to support the euro to start a stable rebound.
Eurozone government bond yields fell, with the spread between French and German 10-year government bonds narrowing to 85 basis points. The market continued to pay attention to the political developments in France.
Disappointing German data drags down euro
Germany's industrial output fell 4.3% in August, far worse than the expected 1% drop. The German Ministry of Economy: Germany's unemployment rate is expected to rise to 6.3% this year, then fall to 6.2% in 2026 and further to 6.0% in 2027. The German economic growth forecast for 2025 was raised to 0.2% from the previous 0%. German GDP is expected to grow by 1.3% in 2026 and 1.4% in 2027.
Geopolitical turmoil weighs on the euro
European Central Bank President Christine Lagarde pointed out that any plan to use frozen Russian assets to support Ukraine must strictly comply with the framework of international law. Currently, the European Commission has proposed to use 170 billion euros of frozen assets, invest them in zero-interest EU bonds guaranteed by EU member states, and provide the resulting funds to Ukraine in the form of compensation loans.
Lagarde stressed that all relevant operations must fully comply with international rules to maintain the euro's international reputation and attractiveness to investors; in addition, the decision must be unanimously agreed upon by all relevant parties holding Russian assets.
The Austrian government supports the European Commission's proposal, but is still waiting for specific legal text to conduct a compliance review.
The European Commission believes it has found a viable solution that balances the need to avoid asset expropriation with support for Ukraine. To provide compensation loans to Ukraine, the Commission is considering adjusting the sanctions mechanism. Currently, sanctions are renewed every six months, a cycle that may not guarantee the long-term stability of the loans. The EU is also exploring the possibility of moving beyond the unanimous decision-making principle to implement the solution.
Meanwhile, recent drone incidents have continued to escalate across Europe, with Denmark and Germany reporting sightings of drones in their respective countries. Regarding the October 2nd incident of an unidentified drone over a Belgian military base, European Commission President Ursula von der Leyen stated that the Belgian Ministry of Defense is currently investigating the incident. These drone incidents signal a worrying trend in the current escalation of various threats. These drone incidents and other airspace violations are, in essence, a systematic effort to divide the EU and weaken support for Ukraine.
Europe is facing a direct challenge from hybrid conflicts. We must clearly hold those responsible accountable and must not shy away from this core issue.
US side:
On Tuesday, the US dollar index showed an overall strengthening trend. Although the US appropriations bill vote failed again, the market ignored the news, which ultimately pushed the euro down further against the US dollar.
U.S. Senate Majority Leader John Thune has made it clear that he will repeatedly submit the same version of the appropriations bill, a stance that suggests the likelihood of reaching a budget agreement in the short term is extremely low. Meanwhile, the White House Office of Management and Budget has reportedly issued a memorandum stating that 750,000 federal workers forced to take leave will not receive back pay.
Although the negative impact of the uncertainty caused by the US government shutdown on the US dollar is gradually fading, it should be noted that if the shutdown lasts too long, resulting in the continuous postponement of the release of key economic data, investors may be cautious about further betting on the appreciation of the US dollar, thereby curbing the dollar's rise.
Technical Analysis:
The euro has fallen below the middle line of its descending channel against the dollar over the past two days, simultaneously breaking below its rising trendline. This has vented bearish sentiment, and the exchange rate has rebounded above 1.1600, finding support at the neckline of the August 6th bottom. Meanwhile, the exchange rate has completed a simple five-wave decline from the September 17th high of 1.1918. The euro is expected to initiate a volatile rebound around the 1.1600 neckline. However, the overall downward trend remains intact, with resistance remaining at the orange rising trendline in the chart.
(Euro/USD daily chart, source: Yihuitong)
At 20:55 Beijing time, the euro is trading at 1.1633/34 against the US dollar.
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