EUR/USD: French Turmoil & USD Strength Drive Bearish Momentum, Oversold Signals Hint at Potential Bounce - Short-Term Forecast

EUR/USD is currently under significant bearish pressure, trading at multi-day lows around 1.16285. This depreciation is primarily driven by political uncertainty in France, particularly the Prime Minister's resignation and fears surrounding the 2026 fiscal budget, coupled with a resilient US Dollar. The Greenback's strength is supported by higher inflation expectations and a surprising rebound despite US government shutdown concerns. Technically, the pair exhibits strong bearish momentum across multiple timeframes, with price action well below key moving averages. However, deeply oversold conditions on shorter-term charts suggest that a temporary rebound or consolidation could precede further declines, especially ahead of a busy US economic calendar later this week.

Recent Market Performance Analysis

Price Action Summary

The EUR/USD pair has experienced a notable slump, falling below the critical 1.1700 level and trading at 1.1654 as of October 7, 2025, according to one report, and later at 1.16285. This decline marks a significant retreat, pushing the pair to multi-day lows and preventing it from clearing key resistance levels that could have targeted the yearly peak of 1.1918. The price action has been characterized by strong selling pressure, leading to the H1 and M30 timeframes showing price below their respective lower Bollinger Bands, indicative of extreme downward momentum. While the overall bias is bearish with price consistently below short and medium-term Exponential Moving Averages (EMAs), the Relative Strength Index (RSI) on H1 and M30 charts has entered deeply oversold territory (26.10 and 23.25 respectively), suggesting potential for short-term exhaustion among sellers or a corrective bounce.

Fundamental Drivers Assessment

The primary fundamental drivers influencing EUR/USD's recent performance stem from a combination of Eurozone political instability and renewed US Dollar strength. In the Eurozone, the resignation of France’s Prime Minister Lecom has fueled fears of fiscal instability, jeopardizing the country’s 2026 budget and preventing the stabilization of public finances. This political turmoil has weighed heavily on the Euro, as articulated by European Central Bank (ECB) President Christine Lagarde, who expressed hope for France to produce a budget in time. Lagarde also noted the Euro Area's vulnerability as an "innocent bystander" to external shocks. Adding to Eurozone concerns, Germany’s Factory Orders for August contracted by -0.8% MoM, missing estimates for an expansion, despite an improvement from July's -2.7% contraction.

Conversely, the US Dollar has shown surprising resilience and strength, rebounding by 0.52% according to the DXY index. This recovery comes despite ongoing US government shutdown uncertainty, which many market participants had expected to weaken the Greenback. Factors contributing to USD strength include elevated one-week interest rates near 4.15% and higher inflation expectations, as revealed by the New York Fed Survey of Consumer Expectations (SCE). The SCE showed median inflation expectations for one year increasing from 3.2% to 3.4%, and for a five-year period from 2.9% to 3%. Minneapolis Fed President Neel Kashkari flagged stagflation risks and cautioned that few rate cuts might not significantly lower mortgage rates, potentially leading to a "burst of high inflation." Governor Stephen Miran noted weaker-than-expected economic growth in the first half of the year, advocating for a forward-looking monetary policy stance. Money markets are still pricing in a high probability (94%) of a 25 basis point Fed rate cut at the upcoming October 29 meeting, but this has not significantly deterred the Dollar's recent rebound, possibly due to a lack of high-impact US data over the past two weeks and a re-evaluation of the dollar's share in bank reserves as per an IMF report.

Technical Analysis

The EUR/USD pair is currently dominated by a strong bearish momentum, yet short-term indicators suggest deeply oversold conditions. The overall bias is unequivocally bearish with high confidence, as price trades significantly below key moving averages across multiple timeframes. This robust downtrend is evident by strong ADX readings in the medium to short term and consistent price action below Exponential Moving Averages (EMAs).

Critical Price Levels

Key resistance levels for EUR/USD are identified as:

• 1.16375: This level, representing the H1 Lower Bollinger Band, is currently acting as immediate resistance, underscoring the intense downward pressure.
• 1.16500 - 1.16525: This zone presents a strong confluence, encompassing a previous H4 open, the daily and H4 middle Bollinger Bands, and the daily close. A move above this region would signal a more significant short-term correction.
• 1.16626: The H1 EMA20, another immediate resistance point that would need to be cleared for a sustained rebound.
• 1.1700: A significant psychological level that previously served as a support but has now turned into resistance, with the pair ending Tuesday's session below it.
• 1.17219: The D1 EMA20.
• 1.1760: A further resistance area.
• 1.1800: A psychological and swing high resistance level.
• 1.1830: The July 1 high.

Key support levels for EUR/USD include:

• 1.16200: A psychological level, just below recent lows, and near the 100-day Simple Moving Average (SMA) at 1.1628. This confluence makes it a critical demand zone.
• 1.16162: The M5 Lower Bollinger Band, indicating immediate downside pressure.
• 1.1600: A significant psychological level, identified as the next demand zone if 1.1628 is surpassed.
• 1.1584: An additional support level that could provide short-term relief.
• 1.1574: The August 27 swing low, a key historical support.
• 1.1528: Another potential support level.
• 1.1450: A pivot price mentioned in the context of a deeper pullback.
• 1.1391: The August 1 cycle low, identified as a significant support if deeper losses materialize. This level is also noted as a critical support in the broader picture, where a firm break could suggest the completion of the rise from 1.0176.

Trend and Momentum Analysis

The multi-timeframe breakdown reveals a consistent bearish trend, albeit with some nuances:

• Primary Trend (Daily): Price is trading below the EMA20 (1.17219) and EMA50 (1.17024), establishing a short to medium-term bearish bias. However, it remains above the EMA200 (1.14160), indicating that the longer-term trend may still be bullish. The MACD histogram is negative, and the RSI is at 41.31, leaning bearish from neutral territory. Price closed precisely at the middle Bollinger Band (1.16525), suggesting a test of this level. The D1 ADX is at 20.90, indicating a developing trend rather than a strong established one.
• Medium-Term (H4): A strong bearish trend is confirmed, with price significantly below EMA20 (1.16941), EMA50 (1.17143), and EMA200 (1.17132). The MACD histogram is deeply negative and expanding, reflecting strong bearish momentum. The RSI at 36.34 is firmly in bearish territory, approaching oversold conditions. The last completed candle also closed at the middle Bollinger Band (1.16525).
• Short-Term (H1): An aggressive downtrend is evident, with price well below EMA20 (1.16626), EMA50 (1.16825), and EMA200 (1.17150). Price has broken below the lower Bollinger Band (1.16375), signaling extreme downward pressure. The MACD histogram is strongly negative, showing persistent selling. Critically, the RSI is at 26.10, deep in oversold territory, which could foreshadow a short-term rebound or temporary exhaustion. The H1 ATR is 0.001086, indicating moderate intraday volatility.
• Intraday (M30): This timeframe mirrors the H1, showing intense selling pressure with price trading far below all EMAs and below the lower Bollinger Band (1.16316). The MACD histogram is strongly negative, while the RSI is at 23.25, reflecting deeply oversold conditions.

There is a strong consensus for a bearish trend across the H4, H1, and M30 timeframes, characterized by price action below EMAs and negative MACD. The D1 chart shows a short-to-medium term bearish bias within a longer-term bullish structure. Momentum quality is strong on shorter timeframes, as indicated by high ADX values (above 30) and expanding negative MACD. However, the deeply oversold RSI on H1 and M30 introduces a short-term counter-signal, suggesting that while the dominant trend is down, a correction or pause could occur. The market is broadly in a "Strong Trend" phase on the H4, H1, and M30, but the D1 indicates a developing bearish trend.

Forward-Looking Market Forecast

Upcoming Economic Calendar Events

The latter half of this week is heavily laden with high-impact US economic data, which could significantly influence EUR/USD volatility and direction. Eurozone-specific high-impact events are not listed for this period, placing the spotlight firmly on USD drivers.

• US FOMC Meeting Minutes (October 8, 2025, 18:00 UTC): This high-impact event could provide crucial insights into the Federal Reserve's future monetary policy path. A more hawkish tone, emphasizing concerns about inflation or a less aggressive stance on rate cuts, may lend further strength to the US Dollar. Conversely, a dovish interpretation, highlighting economic slowdown risks, could potentially trigger a USD weakening.
• US Unemployment Claims (October 9, 2025, 12:29 UTC and 12:33 UTC): Two high-impact releases for unemployment claims are scheduled. A lower-than-forecast reading (forecast: 225K, previous: 218K for the first, and 233K for the second) could indicate a stronger labor market, potentially bolstering the USD. Higher-than-expected claims might suggest a weakening labor market, which could weigh on the Dollar.
• US Average Hourly Earnings m/m (October 10, 2025, 12:32 UTC): This high-impact wage inflation indicator is forecast at 0.3%, matching the previous. A stronger-than-expected increase in earnings could fuel inflation concerns, potentially supporting a hawkish Fed outlook and strengthening the USD.
• US Non-Farm Employment Change (October 10, 2025, 12:32 UTC): A critical high-impact labor market report. The forecast is for 52K, significantly higher than the previous 22K. A robust jobs report could reinforce the narrative of a strong US economy, potentially boosting the US Dollar. A weaker print might undermine USD strength.
• US Unemployment Rate (October 10, 2025, 12:32 UTC): Forecast to remain steady at 4.3%. A lower-than-expected rate could signal a tightening labor market, potentially supporting the USD, while a higher rate might suggest economic softening.
• US Prelim UoM Consumer Sentiment (October 10, 2025, 14:00 UTC): Forecast at 54.6, a slight decline from the previous 55.4. A weaker sentiment reading could indicate consumer pessimism, potentially weighing on the USD.
• US Prelim UoM Inflation Expectations (October 10, 2025, 14:00 UTC): This high-impact release provides a forward-looking view on inflation. The previous reading was 4.8%. Higher-than-expected inflation expectations could reinforce concerns about persistent inflation, possibly supporting the USD if it implies a longer period of higher rates from the Fed.

Bullish Scenario Analysis

A short-term corrective bounce for EUR/USD might emerge if upcoming US economic data, particularly the labor market reports on October 9th and 10th, come in significantly weaker than current forecasts. For instance, if US Unemployment Claims rise more than expected, or if the Non-Farm Employment Change falls short of the 52K forecast, it could lead to a reassessment of the Fed's hawkish stance, potentially weakening the US Dollar. Similarly, if the FOMC Meeting Minutes today reveal a more dovish tone than anticipated, focusing on economic slowdown risks, USD selling pressure could intensify. This shift in sentiment, combined with the deeply oversold RSI on H1 and M30 charts, could trigger profit-taking on existing short positions. In this scenario, EUR/USD may find support around the 1.16200 psychological level or the 1.16100 region. A confirmed break above the immediate resistance at 1.16375 (H1 Lower Bollinger Band) with sustained bullish momentum could lead to a test of the confluence resistance zone around 1.16500-1.16525. If this level is cleared, the next targets could potentially be the H1 EMA20 at 1.16626, and subsequently the H1 EMA50 at 1.16825, as market participants attempt to correct the recent aggressive downtrend.

Bearish Scenario Analysis

The primary bearish continuation scenario could unfold if the upcoming high-impact US economic data reinforces the narrative of a resilient US economy and persistent inflation, or if French political turmoil escalates further. Stronger-than-expected US labor market data on October 10th, particularly if Non-Farm Employment Change significantly exceeds 52K and Average Hourly Earnings show robust growth, could solidify expectations for the Fed to maintain a restrictive policy for longer, thereby strengthening the US Dollar. A hawkish interpretation of the FOMC Meeting Minutes today could also provide further impetus for USD appreciation. Additionally, if the French government fails to secure a budget agreement, intensifying fiscal instability fears, the Euro could face renewed selling pressure. Under these conditions, EUR/USD may face a confirmed break below the immediate support at 1.16200. Such a breakdown could lead to a test of the M5 Lower Bollinger Band at 1.16162, with the next significant demand zone potentially being the psychological level of 1.1600. If this level is breached, the pair might extend losses towards the August 27 swing low at 1.1574, and subsequently, the August 1 cycle low at 1.1391, which represents a critical long-term support level. A retest of resistance levels like 1.16375 or 1.16500-1.16525 followed by bearish candle confirmation could also provide opportunities for short entries, aligning with the dominant bearish trend.

Key Risk Factors and Market Sentiment

The most significant risk factor for EUR/USD in the immediate term is the heavily populated US economic calendar. The FOMC Meeting Minutes today, October 8th, and the cluster of high-impact labor market and inflation expectation data on October 10th, have the potential to introduce extreme volatility. These events could override existing technical structures and lead to sharp, unpredictable price movements. Any strong deviation from forecasts, particularly on Non-Farm Payrolls or inflation expectations, could trigger substantial shifts in market sentiment towards the US Dollar. The ongoing political turmoil in France, specifically the uncertainty surrounding the 2026 fiscal budget and the Prime Minister’s resignation, remains a persistent downside risk for the Euro. While currently priced in to some extent, any further negative developments could exacerbate Euro weakness. The US government shutdown, though its impact on the Dollar has been surprisingly muted so far, could still pose a risk if it drags on longer than anticipated, potentially leading to a delayed but significant market reaction. Furthermore, the conflicting signals from short-term oversold RSI readings against the strong bearish trend indicators (ADX, MACD) introduce a tactical risk, suggesting that while the long-term trend is bearish, a short-term corrective bounce cannot be entirely ruled out. ForexMajors.com client sentiment data indicates that 61% of traders are net-short on EUR/USD. Taking a contrarian view to crowd sentiment might suggest a potential for a near-term rise in EUR/USD, indicating that a significant number of short positions could be vulnerable to a corrective squeeze.

Trading Conclusion and Outlook Summary

EUR/USD is currently embroiled in a strong bearish trend, primarily driven by French political instability weighing on the Euro and a surprisingly resilient US Dollar, bolstered by higher inflation expectations and a robust labor market outlook. Technically, the pair is trading significantly below key moving averages across daily, H4, H1, and M30 timeframes, with negative MACD momentum reinforcing the downtrend. However, the deeply oversold RSI on H1 and M30 charts suggests that the immediate downside momentum might face temporary exhaustion, potentially paving the way for a short-term corrective bounce or consolidation.

The upcoming US economic calendar, especially the FOMC Meeting Minutes today and the critical labor market and inflation data on October 10th, are pivotal. These high-impact events are likely to dictate the pair's short-term trajectory, introducing considerable volatility and potentially overriding current technical patterns. Traders should monitor the 1.16200 support level and the 1.16500-1.16525 resistance zone closely. A sustained break below 1.16200, particularly on strong US data, might open the door for further declines towards 1.1600 and potentially 1.1574. Conversely, a failure of US data to meet expectations, combined with the oversold technical conditions, could trigger a rebound towards 1.16500-1.16525 and possibly 1.16626. Given the heightened event risk, a cautious approach with reduced position sizing is advisable around these key data releases.