FX.co ★ berta.hill | EUR/USD

I've gone through the material on the Fed and the ECB for the upcoming 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 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. For the Fed the picture is as follows. Meeting October 27–28, the market assesses the probability of keeping the rate 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 almost unanimously expect a pause now, but all expect a hike in December. The key intrigue is Worsh's press conference. He consistently 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 rates in December and March, and EURUSD to fall to 1.10 over a 6–12 month horizon; this is a bearish medium-term outlook 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 above 90%. However, a December rise to 2.75% is being priced in by the market. Danske Bank expects the final 25 bps increase in December, after which the rate will remain at that level through 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 Governing Council members after the September meeting became less hawkish than Lagarde's press conference. They are increasingly taking into account demand destruction and the absence of second-round inflation effects, meaning the ECB is not ready to act as decisively 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 historic highs, around 150–160 basis points. As long as this gap does not narrow, the euro will be vulnerable. Moreover, the ECB has made it clear that France cannot use 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 in case the situation deteriorates, and the market is factoring this in. What this means for the pair. The pair is stuck in a range, and both meetings are unlikely to be triggers for a strong move by themselves, because the market has already priced a pause 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 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.