On Monday (October 5), the euro fell as much as 0.8% intraday, hitting $1.1161. This weakening of the euro coincided with Spanish Prime Minister Pedro Sánchez's announcement of a snap election on November 29. Markets already burdened by sovereign debt from France and other high-risk countries faced further political risk. Last week, rumors of a potential contagion in the European bond market reminded investors of the European debt crisis 15 years ago, and the market remains highly wary of some European government bonds. Amid rising global borrowing costs, the heavy debt burdens of core Eurozone members such as France, Italy, and Belgium are seen as significant potential risks. Chris Turner, head of G10 FX strategy at ING, said, "The euro is being priced in at a higher risk premium due to fiscal difficulties." He believes the euro could potentially fall further to $1.10. The euro has fallen to its lowest level since May 2025. Valentine Marinoff, head of G-10 FX research and strategy at Crédit Agricole, said that while news from Spain had a limited impact on the euro, "it did not provide any support either." French bond yields rose on Monday, while German bond yields fell slightly. Last Friday, the spread between French 10-year bonds and German bonds of the same maturity reached 152 basis points, the first time since 2011. Li Haomin, senior macro strategist at LONGi Singapore, pointed out, "Both the bond and foreign exchange markets clearly reflect investors' concerns about the declining stability of the French government and the erosion of the country's fiscal foundation before the 2027 election." According to unnamed traders, short-term speculative funds in Asia heavily sold euros and bought dollars in the spot market. The sell-off triggered price levels, further inducing additional selling related to options. The political outlook in France is also a source of concern for investors. With the general election approaching next year, the opposition parties have little intention of reaching a compromise with Macron's outgoing government. Polls released last week indicated that far-right candidate Marine Le Pen and her far-left opponent Jean-Luc Mélenchon are highly likely to advance to the second round of the election. Options market data shows that traders are continuing to increase their short positions on the euro. The risk reversal indicator, reflecting market positioning and sentiment, is nearing its highest level of euro bearish sentiment since March 2025, but remains far below the extreme readings seen during periods of extreme panic, such as the 2017 French election and the outbreak of the Russia-Ukraine conflict. While short positions on the euro are heating up, they have not yet reached extreme levels . Last Friday, the JPMorgan team (led by Mira Chandan) released a view that the euro has not yet fully digested the negative news from the French market and still faces further downward pressure, with the risk of a decline in the euro against the Swiss franc and the yen being particularly prominent. In their research report, they wrote, "The widening spread in French government bond yields and the resulting tail risks have not yet been reflected in the euro exchange rate. The euro/Swiss franc exchange rate is currently high, and there is still room for further downward adjustment." Elsa Linios, Global Head of FX Strategy at RBC Capital Markets, interprets this as follows: The escalating French fiscal crisis and Spain's announcement of early elections pushed the euro to its lowest level since May 2025. The following will focus on key technical levels. On Monday, the euro/Swiss franc closed lower for the third consecutive trading day, with a maximum intraday drop of 0.6%; the euro/pound fell 0.5%, approaching its lowest point this year; the euro/yen fell sharply by 0.8%, hitting a new low since 2025. A stronger dollar is also putting pressure on the euro. The market expects the Federal Reserve to raise interest rates three more times by July next year to curb inflation, providing support for the dollar. On Monday, the Bloomberg Dollar Spot Index climbed to its highest level since the end of June, and is on track to break its highest record since May 2025. Ruan Qiulan, Head of FX and Commodities Research at Commerzbank, said that euro traders need to pay close attention to the performance of German government bonds. In her research report on Monday, she wrote: "German government bonds have not been significantly affected by this round of market turmoil. As long as the status quo remains unchanged, at least for now, the room for depreciation of the euro will likely be limited."