FX.co ★ berta.hill | EUR/USD

I reviewed 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 the rhetoric will differ. The Fed will maintain 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. The picture for the Fed is as follows. The meeting is on October 27–28, and the market estimates the probability of keeping the rate in the 3.75–4.00% range at 89–93%. This is practically decided, and there is almost no suspense about 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 question is Warsh's press conference. 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 keeps quiet or gives a dovish signal, pressure on the dollar will ease. FXStreet expects the Fed to raise rates in December and March, and EURUSD over a 6–12 month horizon will fall to 1.10 — a bearish medium-term outlook for the pair. The situation at the ECB is no less interesting. The meeting is on October 29, and the consensus is almost 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 by the market. Danske Bank expects the last 25 bps hike 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 from council members after the September meeting have become less hawkish than Lagarde's press conference. They are increasingly taking 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. A separate note on France, because it is the main risk for the euro. Moody's decision to keep the rating at Aa3 with a negative outlook gave the euro a reprieve, but did not solve the problem. The spread between French OATs and German Bunds remains at historic highs, around 150–160 basis points. Until this gap narrows, the euro will be vulnerable. Moreover, the ECB has made it clear that France cannot use the TPI to stabilize its bonds until it overcomes the political deadlock and presents a credible plan for fiscal consolidation. This limits the ECB's ability to defend the euro in case the situation deteriorates, and the market is taking this into account. What this means for the pair. The pair is stuck in a range, and both meetings are unlikely by themselves to be a trigger for a strong move, because the market has already priced in a pause by both central banks. Bullish scenario: if Warsh gives a dovish signal and does not confirm December, while 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. Bearish scenario: if Warsh confirms December and Lagarde keeps quiet, the dollar will strengthen. Holding the price below 1.12201 will return focus to 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.