Euro Rebounds as France Files Budget Ahead of ECB Decision

The Euro has recovered from its recent slide to a fresh low as France prepares to file its budget. Market expectations for an ECB rate hike on October 29 have dropped significantly, from about 60% in late September to around 14% currently, though a move by year-end remains highly likely at nearly 80%. ECB Chief Economist Philip Lane emphasized that high energy costs have not yet led to strong effects on wages and broader prices, suggesting the Euro area may not be in the adverse scenario.

Retail sales in the Eurozone showed a modest increase of 0.1% month-over-month in August, slightly missing forecasts but improving from a 0.6% decline in July. Year-over-year, sales rose 0.8%, below expectations of 1%. Fuel volumes were down 3.7% compared to a year earlier, indicating the energy shock is influencing consumer spending. This softer economic data weakens the case for an October rate hike, which could further pressure the Euro against the US Dollar.

Key ECB officials, including Vice-President Vujčić and Chief Economist Lane, are scheduled to speak this week ahead of the release of the September 10 meeting minutes. The National Assembly in France will vote on its budget on October 20, just days before the ECB's decision. Meanwhile, the Federal Open Market Committee (FOMC) minutes will be released on Wednesday, with Friday's University of Michigan survey expected to show consumer sentiment at 47.6, down from 48.1. US households anticipate inflation to remain above the Fed's target range, which could push EUR/USD back toward earlier lows.

Technically, the Euro faces resistance at 1.1300, with support levels at 1.1200, 1.1150, and 1.1100. The daily Stochastic Relative Strength Index (Stoch RSI) suggests potential for a test of 1.1300 before sellers return, with a close above 1.1350 required to shift the bias.