Euro holds gains above 1.1200 despite France’s bond turmoil

The EUR/USD currency pair climbed higher, reaching near 1.1215 in the early Asian trading session on Monday. The US Dollar softened against the Euro due to weaker-than-expected US Consumer Sentiment data. The European Central Bank's Vice President, Boris Vujčić, was due to address the topic later in the day. In October, U.S. consumer sentiment weakened further as soaring oil prices, caused by the Middle East conflict, dampened households' views of the economy.

The U.S. Consumer Sentiment Index dropped to 46.3 in October from 48.1 in September, below the market consensus of 47.6. Additionally, U.S. one-year inflation expectations rose to 4.7% in October from 4.6% in the previous reading, while consumers' expectations for inflation over the next five years surged to 3.5% from 3.4% in September.

This data supported expectations of a 25 basis points (bps) Federal Reserve rate hike at their upcoming meeting. French government bond yields surged to multiyear highs as France's mounting debt crisis added to wider concerns about Europe's strained public finances. Traders will keep a close eye on Italy amid contentious new government spending plans, which are set to increase the country's budget deficit over the next two years and push its debt-to-GDP ratio toward the highest level in Europe.

Despite recent Euro weakness, MUFG analysts still see evidence of economic resilience in Europe that could help stabilize the euro at these lower levels. They highlight Germany's revised GDP growth projections, which now stand at 1.3% and 1.1% for this year and next, respectively. However, MUFG cautions that mounting trade frictions with China could pose a potential headwind for the single currency, including speculation of a more flexible trade policy mechanism or additional tariffs.

The technical analysis of the story finds the EUR/USD pair holding below the 100-day simple moving average and even beneath the Bollinger Bands' 20-day middle line, indicating structural caps on rallies. Immediate support is around 1.1125, while initial resistance lies at the Bollinger 20-day middle band at 1.1345, followed by the 100-day SMA at 1.1490 and the upper Bollinger band near 1.1560.