EUR/USD is back above 1.120 this morning — the pair printed 1.1206 on MarketRadar's board — after the dollar slipped as Treasury yields took a breather. Francesco Pesole at ING is unimpressed. His latest FX Daily, titled "High bar for a dollar correction," argues the greenback's pullbacks will stay brief and shallow. With markets still pricing a December Fed hike, he sees 1.110/1.112 as the next test lower — roughly 0.8% beneath current levels.
That is the crucial distinction in this bounce. EUR/USD above 1.12 reflects a softer dollar, not a stronger euro. The common currency is making no headway against the Swiss franc, the pound sterling, or the Swedish krona — the classic signature of a move driven by the other leg, not by demand for euros.
Why is the dollar still so hard to push down? Two Fed officials answered that question this week. Alberto Musalem and Christopher Waller both restated the case for further rate hikes, keeping the market's December meeting as the base case. Pricing puts only about a 1-in-5 chance on an October move — the weak September payrolls print of 29,000 versus 90,000 expected killed that — but roughly 85% odds on a hike by December, according to FXEmpire's October 7 read. The September 25bp hike on September 16 is only three weeks old. Nothing since has told policymakers to stop.
Why it matters
The euro's real anchor is France, not Frankfurt. The 10-year OAT-Bund spread closed at 140 basis points this week, and Pesole's team reads the bond market the same way: traders are in no hurry to stop charging France a fiscal premium. Marine Le Pen lifted her proposed spending cuts to €140 billion from €125 billion, but ING's verdict is that even €140 billion of promised cuts won't rescue French bonds. That leaves the single currency exposed to French politics for some time to come — which is why Italy's own deficit blowout, with Rome lifting its 2027 target to 3.4% of GDP, matters for EUR/USD traders too. Europe's sovereign-risk premium is becoming a regional story, not a one-country story.
The dollar side of the pair is getting help from energy as well. Brent is holding above $100 a barrel — near $102 — and ING notes the oil market keeps a geopolitical premium priced in even after Donald Trump said the US would not attack Iran before the November 3 midterms. The dollar index is hovering near its highs of the year around 102.2–102.5, with ING's earlier note flagging 102.85 as the next upside target. On divergence alone, the setup favors the dollar: since late September, markets have stripped 30 basis points of expected ECB tightening against just 13 for the Fed.
| Bank | EUR/USD call | Horizon |
|---|---|---|
| ING | Retest 1.110/1.112 | Near term |
| ING | Target 1.160 | Year-end |
| Deutsche Bank | Target 1.17 | Year-end |
That table is the disagreement in one glance. The big houses still see the euro climbing into December; the desk that watches the daily flows sees one more leg down first.
What to watch
- University of Michigan surveys, today: economists expect the inflation-expectations gauge to tick up even as headline sentiment slips — a combo that keeps the Fed hawkish.
- Fed speakers: Susan Collins is the only policymaker due today after the Musalem–Waller one-two punch on more hikes.
- Canada jobs, today: consensus sees +10,000 payrolls after August's 42,000 contraction, with unemployment ticking up to 6.5%. A December Bank of Canada hike is fully priced; USD/CAD needs to clear back below 1.420 for the loonie to breathe.
- Oil: any repricing of the Iran premium moves the dollar's safe-haven bid within hours.
- French fiscal politics: the OAT-Bund spread at 140bp is the euro's real heartbeat right now — a narrowing would do more for EUR/USD than any dollar wobble.
MarketRadar take
The tape says fade this bounce. A 1.1206 handle with no euro strength against the franc or krona is a dollar story, and every driver behind it — a hawkish Fed that just hiked, a December move priced at ~85%, French fiscal risk, $100+ oil — still points one way. The first magnet is the 1.110/1.112 zone ING keeps circling, a drop of under 1% that would nonetheless break the post-NFP recovery cleanly. Only a sustained narrowing of the OAT-Bund spread below 130bp would change the read — until then, rallies in EUR/USD are the dollar pausing, not the euro healing.
