FX.co ★ berta.hill | EUR/USD

I went through the material on the Fed and the ECB for the coming week, and the main conclusion is this: both central banks are likely to pause, but the 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. The picture for the Fed is as follows. Meeting October 27–28, the market prices the probability of the rate remaining in the 3.75–4.00% range at 89–93%. This is practically settled, and there is little 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 unanimous in expecting a pause now, but all expect a hike in December. The key intrigue is Warsch's press conference. He fundamentally avoids forward guidance, so the market will be hunting 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 hike in December and March, and EURUSD over a 6–12 month horizon will fall to 1.10 — a bearish medium-term forecast for the pair. The situation at the ECB is no less interesting. Meeting October 29, the consensus is almost unanimous: the deposit rate will remain at 2.50%, with the probability of a pause over 90%. However, the market is pricing in a December hike to 2.75%. Danske Bank expects the final 25-bp hike in December, after which the rate will remain at that level in 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 been less hawkish than Lagarde's press conference. They increasingly take into account demand destruction and the absence of secondary inflationary effects, which means the ECB is not ready to act as decisively as the Fed. Separately 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 breather, but it did not solve the problem. The spread between French OAT and German Bunds remains at historic highs, around 150–160 basis points. Until that gap narrows, the euro will be vulnerable. Moreover, the ECB has indicated that France cannot use the TPI to stabilize its bonds until it overcomes the political deadlock and presents a convincing plan for fiscal consolidation. This limits the ECB's ability to defend the euro in case of a deterioration, and the market is factoring this in. What this means for the pair. The pair is stuck in a range, and neither meeting is likely to by itself trigger a strong move, because the market has already priced in a pause from both central banks. Bullish scenario: if Warsch 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 Warsch confirms December and Lagarde stays silent, the dollar will strengthen. Holding the price below 1.12201 will return the focus to 1.11540–1.11454. The main risk for the euro is not the Fed, but France. As long as spreads are wide, any rally will be limited. Good luck.