FX.co ★ berta.hill | EUR/USD

I worked 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 the rhetoric will differ. The Fed will maintain a hawkish tilt, hinting at December, while the ECB will probably be more cautious due to 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 on the Fed is as follows. Meeting on October 27–28, the market prices the probability of keeping the rate in the 3.75–4.00% range at 89–93%. This is practically settled, and there is almost no suspense in the decision itself. However, a pause does not mean easing. About 81% of traders expect 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 Warsh’s press conference. He fundamentally avoids forward guidance, so the market will be catching 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. The situation at the ECB is no less interesting. Meeting on October 29, the consensus is nearly unanimous: the deposit rate will remain at 2.50%, probability of a pause over 90%. However, a December hike to 2.75% is priced in by the market. Danske Bank expects a final 25 bps 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 preserve full flexibility and not give firm guidance. Moreover, comments from Governing 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 second-round inflation effects, which means the ECB is not ready to act as forcefully as the Fed. Separately on France, because this 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 did not solve the problem. The spread between French OATs and German Bunds remains at historical highs, around 150–160 basis points. While this gap does not narrow, 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 convincing plan of fiscal consolidation. This limits the ECB’s ability to defend the euro if the situation deteriorates, and the market takes that 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, 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. Bearish scenario: if Warsh confirms December, and Lagarde stays silent, 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.