Oil shock keeps the euro under pressure

EUR/USD

Key zone: 1.1150 - 1.1250

Buy: 1.1270 (on strong positive fundamentals) ; target 1.1400-1.1450; StopLoss 1.1200

Sell: 1.1120 (on a decisive break above 1.1150) ; target 1.1000-1.0950; StopLoss 1.1190

Energy costs, weakness in German industry, and France's fiscal problems favor the dollar, but further declines in EUR/USD depend on U.S. inflation and the reaction of bond yields.

A reminder:

The euro is facing several sources of pressure simultaneously: accelerating inflation in the eurozone, uneven industrial demand, and growing doubts about the sustainability of French public finances. Against this backdrop, the dollar is benefiting from safe-haven demand and concerns that the energy shock will make it harder for U.S. inflation to slow further.

However, fundamental arguments favoring the U.S. currency do not necessarily mean that EUR/USD should be sold at current levels. To confirm the bearish scenario, the market needs a specific signal — above all, the reaction of U.S. Treasury yields to the upcoming CPI release.

Oil-Driven Inflation

Preliminary Eurostat data indicate that annual inflation in the eurozone accelerated from 3.2% in August to 3.8% in September. Energy prices rose 18.8% year over year, following a 14.3% increase a month earlier. Services inflation stood at 3.2%, while inflation in non-energy industrial goods was 1.1%.

Inflation excluding energy, food, alcohol, and tobacco is preliminarily estimated at 2.5% in September, compared with 2.4% a month earlier. This indicates that the energy component is playing a significant role in accelerating the headline index. Consequently, it would be premature to conclude that price pressures are intensifying broadly based on headline CPI alone.

Germany: The Industrial Downturn Requires Context

Weakness in the eurozone's largest economy remains another source of uncertainty for the euro. In August, German industrial orders fell 10.6% from the previous month. However, excluding large contracts, the decline was just 0.1%.

The main reason for the sharp decline in the overall figure was a 61.5% drop in orders for transportation equipment following an exceptional increase in July. This pattern reflects the high volatility of large transactions and makes it inappropriate to interpret a single monthly result as evidence of a collapse in industrial demand.

This does not eliminate the structural problems facing German industry, but it makes the picture less clear-cut. For the ECB, the situation remains challenging: accelerating inflation limits the scope for rate cuts, while unstable industrial demand increases risks to investment and economic activity.

French Debt Increases the Risk Premium

According to INSEE, France's government debt reached €3,595.5 billion in the second quarter of 2026, equivalent to 119.0% of GDP, compared with 117.5% one quarter earlier. At the same time, preliminary annual inflation in France accelerated to 3.0% in September from 2.4% in August. The harmonized inflation rate reached 3.4%.

Nevertheless, rising fiscal risks in an individual country do not, by themselves, imply an inevitable systemic crisis in the eurozone. In this context, movements in the spread between French OATs and German Bunds should be analyzed alongside U.S. Treasury yields.

U.S. CPI: The Dollar's Next Test

The U.S. currency is benefiting both from safe-haven demand and from concerns that rising energy prices will slow inflation's return to the Federal Reserve's target.

Market forecasts suggest that headline U.S. inflation will accelerate to approximately 3.7% year over year. Core inflation is expected to be around 2.5%. The CPI release on October 14 will be the next catalyst capable of shifting expectations for Federal Reserve monetary policy.

If actual inflation exceeds forecasts, Treasury yields could resume rising as interest rate expectations are reassessed. Such a scenario could strengthen the dollar's advantage, particularly if the risk premium on French government bonds continues to widen at the same time.

Softer data, by contrast, could weaken the U.S. currency and trigger a corrective rise in EUR/USD.

So What Is the Bottom Line?

The fundamental picture remains moderately favorable for the dollar, but it does not, by itself, provide sufficient grounds for selling the euro unconditionally. For EUR/USD, the critical factor is a combination of developments: U.S. yield movements, the repricing of interest rate expectations, and changes in the OAT–Bund spread. If these factors move simultaneously in the dollar's favor, they will strengthen the bearish scenario.

Until the U.S. economic data are released, the dollar's advantage remains conditional: the macroeconomic backdrop determines the direction of risk, but the market must confirm the entry point.

So we act wisely and avoid unnecessary risks.

Profits to y’all!