The Zhitong Finance App learned that when the ECB will announce interest rate decisions late on Thursday, euro trading is near its lowest level since May 2025. As of press release, the EUR/USD exchange rate fell 0.15% to 1.1140 US dollars per euro.
Meanwhile, both the options market and technical indicators suggest that the euro is at risk of further decline. The longer-term option pricing shows that traders are bearish on the euro has reached the highest level since March 2025.
With fiscal challenges facing France and emerging political risks in Europe, the euro is expected to record its worst two-month performance since the end of 2024. The market expects ECB officials to keep interest rates unchanged on Thursday to assess the impact of high energy prices and slowing economic growth momentum on inflation. Meanwhile, market expectations for future interest rate hikes by the Federal Reserve have also increased the attractiveness of the US dollar compared to the euro.
French fiscal risks and the repricing of the Federal Reserve's policy expectations put pressure on the euro
Francesco Pesole, foreign exchange strategist at Dutch International Group, said that the EUR/USD exchange rate “has shown that it is not ready to fall below the 1.11 mark.” He said, “We do not expect that the risk events brought about by today's ECB resolution will trigger a new round of sharp decline in the euro.”
However, technical momentum may further increase the downward pressure on the euro and may push the euro to a new low in 17 months. The so-called “fear-greed indicator” — which measures the ratio between buying intensity and selling intensity — has been in a bearish state for the longest time since January 2025. The current cumulative scale of this round of bearish market has also become the third largest bearish phase in the past six years.
An important indicator of market positions and sentiment shows that market concerns about France are structural and are more evident in long-term bets. Although the one-week risk reversal indicator shows that traders are less bearish on the euro in recent trading days, the one-year risk reversal indicator shows that the premium required to bet on a fall in the euro is still expanding. Foreign exchange traders familiar with related transactions said that the short-term bearish options structure has recently been closed. They also pointed out that when the EUR/USD exchange rate is below 1.11, there is interest in selling.