EUR AI Market Pulse, Wednesday, 28 October 2026
JAFX AI’s read of the news on EUR (Euro), as it stood at the end of the day: read at 21:00 UTC.
Bias: two-way
EUR bouncing off 17-month lows after Warsh's Fed presser hit USD, but the downtrend is intact. Thursday's ECB, expected to hold at 2.50% DFR, decides whether this is short-covering or a turn.
EUR/USD hit a yearly low of 1.1113 pre-Fed amid French budget stress, wider OAT-Bund spreads and high energy prices. It then jumped through 1.1150 to a session high during Fed Chair Warsh's presser as he said tightening 'is starting to work', capping a five-day losing streak, while DXY slipped back toward 102.00. Data were secondary: GfK edged above forecast (-30.8 vs -31), and Italy PPI printed hot at 13.8% y/y (the 0% forecast looks like a placeholder).
The past week
EUR ground lower all week to its weakest since May 2025, closing Tuesday at 1.1120 as broad USD strength on Fed hike pricing dominated. ECB Bank Lending Survey signals were mixed: ING flags tighter lending and weaker loan demand as a downside risk, while Danske reads it as the euro area coping with higher rates. EUR also hit a 17-month low vs GBP (0.8360) ahead of the UK budget.
The bigger picture
This is a global tightening regime (BoC hiked to 2.50%; Fed seen hiking in Dec and Mar; BoE expected to hike) in which EUR is held back by French fiscal risk, high energy costs and soft lending. Resilient Q3 growth and 3%+ inflation keep a December ECB hike possible.
Positioning
A hawkish Fed (Dec and Mar hikes) and an ECB hold are both largely priced, and EUR sits at yearly lows with stretched downside momentum (UOB) and oversold RSI on EUR/GBP. A hawkish Lagarde nod to a December hike therefore has more room to extend the squeeze than a cautious hold has to break new lows, unless French fiscal or energy stress compounds it.
Scenarios it set out
- ECB holds DFR at 2.50% (f/c) but Lagarde flags energy-driven inflation and keeps a December hike live EUR bid; EUR/USD extends the post-Warsh rebound beyond 1.1145/1.1160 toward 1.1190 strong resistance, with 1.1200 the cap
- Hold at 2.50% with a cautious tone citing the lending slowdown and French fiscal risk, pushing back on December Rebound fades; EUR/USD slips back toward the 1.1113 yearly low and 1.1110/1.1095 support (UOB's 1-3 week target 1.1095)
- Surprise hike above 2.50% DFR / 2.65% MRO (not forecast) Sharp EUR spike as shorts cover; 1.1190-1.1200 quickly in play, EUR/GBP lifts off the 0.8360 low
What it said to watch
- EUR/USD 1.1150: holding above it after Warsh keeps the squeeze alive; 1.1113/1.1095 below, 1.1190/1.1200 above
- DXY around the 102.00 zone as US GDP, PCE and jobless claims land
- OAT-Bund spread and French budget headlines
- Energy/oil prices as both an ECB-hawkish and growth-negative EUR driver
- EUR/GBP 0.8360 low vs UK budget fallout (ING sees 0.8315 risk)
- Thu 10:00 GMT EZ ESI (f/c 97.5) and consumer confidence (f/c -17.9) as a pre-ECB tone check
Risk ahead, as it saw it
ECB decision Thu 29 Oct 13:15 GMT (DFR f/c 2.50%, MRO f/c 2.65%), Lagarde presser 13:45 and Cipollone 15:50; earlier, EZ ESI (97.5) and consumer confidence (-17.9) at 10:00. Fri 30 Oct: GDP QoQ 06:30 (f/c 0.1%) and HICP YoY 07:45 (f/c 3.6%). US Q3 GDP, PCE and claims are also due per the news.