FX.co ★ berta.hill | EUR/USD

I've gone through the material on the Fed and the ECB for the coming week, and the main conclusion is this: both central banks will most likely pause, but their rhetoric will differ. The Fed will retain a hawkish tilt, hinting at December, while the ECB will likely be more cautious because of the French crisis. It is this combination that will determine where the pair goes after the meetings, not the rate decisions themselves, which the market has already priced in. Here's the picture for the Fed. Meeting October 27–28, the market prices the probability of the rate remaining in the 3.75–4.00% range at 89–93%. That's practically decided, and there's almost no suspense in the decision itself. However, a pause does not mean easing. About 81% of traders are pricing in a hike in December, and economists surveyed by Reuters are almost unanimously expecting a pause now, but all expect a hike in December. The key intrigue is the press conference of Worsh. He fundamentally avoids forward guidance, so the market will be looking for hints. If he confirms a December hike, the dollar will strengthen. If he stays silent or gives a dovish signal, pressure on the dollar will ease. FXStreet expects the Fed to raise the rate in December and March, and EURUSD over a 6–12 month horizon will fall to 1.10 — this is a bearish medium-term forecast for the pair. For the ECB the situation is no less interesting. Meeting on October 29, the consensus is virtually unanimous: the deposit rate will stay at 2.50%, with the probability of a pause above 90%. However, a December hike to 2.75% is being priced in. Danske Bank expects a final 25 bp increase in December, after which the rate will remain at that level into 2027. Intesa Sanpaolo also sees a pause in October and a possible hike in December. But there is an important nuance. Lagarde will likely keep full flexibility and not give firm guidance. Moreover, comments by Governing Council members after the September meeting have become less hawkish than Lagarde's press conference. They increasingly take into account demand destruction and the absence of second-round inflation effects, which means the ECB is not ready to act as decisively as the Fed. Separately on France, because it's the main risk for the euro. Moody's decision to keep the rating at Aa3 with a negative outlook has given the euro some respite, but it hasn't solved the problem. The spread between French OATs and German Bunds remains at historical highs, around 150–160 basis points. As long as this gap doesn't narrow, the euro will remain vulnerable. Moreover, the ECB has made it clear that France cannot use the TPI to stabilize its bonds until it overcomes its political deadlock and presents a convincing plan for fiscal consolidation. This limits the ECB's ability to defend the euro if the situation deteriorates, and the market is taking that into account. What this means for the pair. The pair is stuck in a range, and both meetings are unlikely by themselves to trigger a strong move, because the market has already priced in pauses by both central banks. Bull scenario: if Worsh gives a dovish signal and does not confirm December, and Lagarde, on the contrary, hints at a December hike, the euro will receive support. A break of 1.12500 will open the way to 1.13503. Bear scenario: if Worsh confirms December, and Lagarde stays silent, the dollar will strengthen. Holding the price below 1.12201 will refocus attention on 1.11540–1.11454. The main risk for the euro is not the Fed, but France. As long as spreads remain wide, any rally will be limited. Good luck.