The Euro (EUR) continued its recovery on Friday, extending gains made against the US Dollar (USD) the day before. The EUR/USD pair rose by 0.2%, reaching approximately 1.1235 during European trading hours. This rebound came as yields on French bonds sharply corrected, providing relief to the Euro after weeks of underperformance.
Yields on 10-year French bonds dropped by nearly 3.4%, or 17 basis points (bps), to 4.8% from their Thursday high. The Euro had struggled in recent weeks due to the widening gap between French bond yields and those of the rest of the Eurozone. However, market experts caution that French fiscal risks remain, suggesting the Euro's recovery may be short-lived.
Analysts at ING warn that the Euro's recent reprieve could be temporary, as France's political and fiscal challenges continue to weigh on sentiment. They argue that Marine Le Pen's proposed fiscal tightening may not be sufficient to stabilize French bonds, leaving the Euro vulnerable to further declines. Meanwhile, a correction in the US Dollar, driven by a pullback in US Treasury yields, has also supported the EUR/USD pair.
As of writing, the US Dollar Index (DXY) trades marginally lower near 102.00, after failing to extend its rally above the yearly high of 102.54. Investors are now looking ahead to the US Consumer Price Index (CPI) data for September, set to be released on Wednesday.
Technical analysis shows EUR/USD trading at 1.1221, with a bearish tone as the price remains below the 20-period exponential moving average (EMA) at 1.1344. The Relative Strength Index (RSI) around 27 indicates oversold conditions, which could slow aggressive selling but does not suggest a bullish reversal. Resistance is seen at the 20-day EMA, while there are no immediate technical supports, leaving the pair vulnerable to further declines.