EUR/USD Under Pressure Amid French Instability And US Dollar Strength
EUR/USD remained under mild pressure in early European trade on Monday, failing to build on a bounce from around 1.1185 while staying above the May 2025 low set last Wednesday. Attention stayed on France, where difficulties passing a deficit-cutting budget ahead of elections helped drive the spread between French and German 10-year government bonds to its widest since the 2011 Eurozone debt crisis. Separately, civil unrest in France weighed on European markets, while firmer US Dollar demand added to the pair’s headwinds.
In the US, a lack of guidance from the Federal Reserve chair reduced perceived chances of policy tightening later this month, although last week’s hotter-than-expected inflation data kept expectations of a rate rise by year-end in play. Geopolitical tension in the Middle East, including the US-Iran dispute around the Strait of Hormuz, continued to support safe-haven flows into the dollar. Technically, the pair was capped near 1.1270-1.1275 on Friday, with focus on support in the mid-1.1100s and a potential trigger seen on a daily close below 1.1150.
Trading Strategy: Sell-On-Rally Mindset Recommended
We suggest that derivative traders keep a cautious sell-on-rally mindset for the EUR/USD pair in the coming weeks. Political and fiscal instability in France continues to drag on the euro, driving the French-German 10-year bond yield spread toward historic highs above 85 basis points. Historical precedents from the 2011 European debt crisis show that rising sovereign spread risks usually lead to prolonged weakness in the shared currency.
At the same time, recent hotter-than-expected US inflation figures are boosting the US dollar by raising expectations for a Federal Reserve rate hike by year-end. Tensions near the Strait of Hormuz are also driving demand for safe-haven assets, giving the dollar strong fundamental backing. In similar past geopolitical cycles, safe-haven demand has added significant strength to the greenback over multi-week stretches.
Execution And Risk Management For EUR/USD Shorts
To trade this setup effectively, we advise waiting for a daily close below the critical 1.1150 support level before committing to fresh short positions. A breakdown below this threshold would likely trigger systematic selling, opening the path for a deeper slide toward the 1.1000 region. If prices instead move above the 1.1275 resistance barrier, we should pause short-side setups and reassess the market bias.
Options traders can consider using bear put spreads to profit from a potential drop while strictly limiting risk. Placing stop-loss orders just above 1.1275 will protect position-based trades against unexpected upside spikes. We must closely monitor French budget developments and US inflation commentary, as sudden headlines could trigger rapid volatility swings across foreign exchange markets.
