EUR/USD Plummets to 17-Month Low Amid European Fiscal Worries

The EUR/USD exchange rate plunged to its lowest level in 17 months, falling to 1.1162 as concerns about Europe's fiscal health intensified. The drop of over 4.67% from its September high reflects mounting worries about government bond yields, particularly in France, where the 10-year yield hit 4.99%. Similar yield increases are seen in Germany and other European countries, adding to the instability.

The political landscape is also contributing to the downturn. Spanish Prime Minister Pedro Sanchez is considering an early election after a key housing vote loss, while France faces growing protests and fiscal instability. Analysts from Lombard Odier noted that bond and currency markets are reacting negatively to the rising instability and erosion of France's fiscal anchor ahead of the 2027 elections.

The European Central Bank predicts weak growth of 0.9% this year, well below the current inflation rate, which remains above 2%. Meanwhile, the upcoming Federal Reserve minutes, set to be released on Wednesday, could influence the EUR/USD pair, though their impact may be limited given recent economic data showing softer inflation and weaker job growth in the U.S.

Technically, the EUR/USD pair has broken below the key support level of 1.1391, confirming a bearish trend. It has dropped to the 38.2% Fibonacci Retracement level, fallen below the 50-week moving average, and the Supertrend indicator has turned red. The next major target is the psychological level of 1.100.