Euro Falls to 17-Month Low

The euro fell to a 17-month low against the US dollar, reaching 1.1161 on October 5. This is its lowest level since May 2025. Over five weeks, the pair lost more than 3% of its value and was trading around 1.1182 on October 9. Analysts increasingly attribute the decline to problems with the euro rather than the strength of the dollar. The currency is under pressure from four factors. According to KBC, the weakness of the euro has become the main factor, replacing dollar strength as the primary driving element. The sharp actions of the Federal Reserve in mid-September led to the decline, but problems in Europe, particularly in France, exacerbated the situation. The difference between the 10-year yields in France and Germany reached levels not seen since the 2012 crisis, raising doubts about the country's fiscal policy until 2027.

Additionally, Italy plans to increase its deficit, and Spain is preparing for snap elections on November 29. Meanwhile, the Federal Reserve raised interest rates in September and signaled a possible further increase this year. Even a weak jobs report, showing only 29,000 new jobs, helped the euro for just one day. The European Central Bank is not offering significant help, having previously resumed rate hikes, but now officials are lowering expectations for an October hike. Alongside this, the price of Brent crude oil exceeded $100, which raises inflation and threatens economic growth. According to Jane Foley, head of FX strategy at Rabobank, “the euro cannot gain momentum.” On the weekly chart, the pair failed to overcome the resistance level at 1.18 and is now moving towards the 0.382 Fibonacci retracement level at 1.1110, which served as a support level in May 2025.

If this level is breached, the next will be 1.08. Below lies the 0.618 golden area at 1.0509, while the upward trend line from 2022 is heading towards the area around 1.07. The Relative Strength Index (RSI) is at 34 and continues to decline, but is approaching the support line that has held since 2022. A bounce from it could return the euro to higher levels against the dollar. On the daily chart, a more bearish picture is observed. The pair has formed lower highs and lows since January within a descending parallel channel. The 20-day moving average has repeatedly rejected attempts at retesting from below, each time leading to a new lower high. It has not been tested since September and is around 1.13, at the midline of the channel. The first attempt at retesting may lead to rejection. The lower boundary of the channel is around 1.10, just below the 0.382 Fibonacci level. As long as the trend remains bearish, the euro may continue to lose ground. Banks are at odds. MUFG forecasts 1.10 if the difference between French yields continues to widen, while ABN AMRO targets 1.15 by the end of the year. US inflation data is expected on October 14, and the Fed and ECB meetings are scheduled for October 28 and 29.