Euro rises to near 1.1250, US midterm elections in spotlight

EUR/USD gains traction to near 1.1240 in Wednesday’s early Asian session.
US midterm elections will take center stage on Wednesday.
ECB’s Nagel says the central bank will probably have to hike in December.

The EUR/USD pair edges higher to around 1.1240 during the early Asian trading hours on Wednesday. US midterm election uncertainty exerts some selling pressure on the US Dollar (USD) against the Euro (EUR). Traders will closely watch the election results ahead of the US September jobs data later this week.

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Americans are voting in midterm elections that will deliver a verdict on US President Donald Trump's second term. The race for control of Congress remains open, with key contests still undecided.

In the US House, media have projected winners in about two dozen of the chamber's 435 seats, none of which were in races expected to be closely contested. In the US Senate, Democrats have won the first seven of 35 seats up for grabs on Tuesday, including a win by US Senator Jon Ossoff in Georgia, according to US media projections. Even with these initial victories, the party must still pick up a net of four seats to win control of the Senate.

Hawkish comments from European Central Bank (ECB) policymakers also lift the shared currency. ECB Governing Council member Joachim Nagel said on Tuesday that the central bank will probably increase borrowing costs next month due to the worsening outlook for inflation.

The ECB held the key interest rates steady last week after raising them twice since the start of the Iran war. Several officials have indicated additional hikes may be necessary. Economists expect a final move in rates next month, though markets see tightening continuing beyond that, into 2027.

Euro edges lower as ECB keeps December hike risk alive

Analysts at Scotiabank note that the Euro is trading modestly softer against the Dollar in subdued conditions, with the move framed by ongoing hawkish messaging from the ECB. They highlight comments from ECB Governing Council member Radev, who stressed that the October rate pause "does not mean that tightening is over," thereby "keeping the door open for a December hike." Scotiabank points out that "Dec OIS are pricing in 22bps of tightening risk," underscoring that markets still see a meaningful chance of further policy action.

On the commodity side, Scotiabank observes that "despite the drop in crude oil prices this week, the European energy focus remains on natgas/power where prices have eased but remain significantly above even the most pessimistic ECB forecasts." This persistent elevation in gas and power costs continues to shape the inflation backdrop in the Eurozone, even as headline energy markets appear calmer.

In terms of fiscal developments, Scotiabank also flags that "France reported its September YTD budget balance of EUR159.2bn, in line with expectations," suggesting no major surprise from one of the Eurozone’s key sovereign borrowers.

Nagel flags likely December hike, supporting Euro upside risk

ECB’s Nagel delivers a stronger-than-usual hawkish signal, with the 8.2/10 FXS Speechtracker score notably above the 7/10 historic average, reinforcing expectations for tighter policy. The explicit remark that “a rate hike in December is very likely to be necessary” and the warning that inflationary pressures are approaching an adverse scenario underline a clear bias toward further tightening, supportive of the Euro on rate-differential grounds.

Nagel’s emphasis on preventing an energy price spike from morphing into broad-based inflation, while stressing that France’s budget issues are not a task for monetary policy, keeps the focus squarely on price stability. This combination of inflation vigilance and confidence in fiscal containment suggests limited tolerance for upside inflation surprises, increasing the probability of additional hikes and sustaining Euro resilience against the Dollar and other majors in the near term.

Technical Analysis: EUR/USD keeps a bearish vibe under the 100-day SMA

In the daily chart, EUR/USD trades with a bearish near-term bias, as spot remains capped beneath the 100-day Simple Moving Average (SMA). Price holds just above the 20-day Bollinger Bands middle line, suggesting some underlying but fragile demand, while the upper band at 1.1254 marks immediate overhead resistance. The Relative Strength Index (RSI) at 46 stays below the 50 line, hinting that recovery attempts lack strong momentum.

On the topside, initial resistance is located at the Bollinger upper band around 1.1255, ahead of the more meaningful barrier at the 100-day SMA near 1.1420, where sellers are likely to defend the broader downtrend. On the downside, the first support level aligns with the Bollinger middle band at 1.1195, with a deeper cushion at the lower band near 1.1135; a daily close below this latter floor would reinforce the bearish structure and open the way to further losses.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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