Les Misérables

October 05, 2026

Elias Haddad

France fiscal risk and fewer potential ECB hikes weigh on EUR.

US ISM services to back Fed’s tightening bias.

Brazilian assets set to rally on Bolsonaro’s strong election result.

Check-out our Drivers for the Week Ahead for the upcoming key market shaping themes and our Mind on the Markets Q4 report titled: The political quarter.

USD briefly surged to fresh highs as EUR slumped. Stocks, bonds, and crude oil prices are steady. Tighter policy elsewhere and a growing case for an October Fed pause are USD headwinds. But US growth outperformance and strong foreign appetite for US securities keep USD risks skewed to the upside.

September Services ISM survey should remain indicative of resilient US economic activity and sticky inflation pressures (3:00pm London, 10:00am New York). The headline index is seen at 55.0 vs. 55.4 in August, and the Prices Paid index is expected at 73.2 vs. 72.6 in August.

EUROZONE

EUR is underperforming all major currencies, with EUR/USD dropping briefly to an intra-day low at 1.1161, its lowest level since May 2025. France’s budget crisis is spilling into other Eurozone sovereign bond markets, widening yield spreads to Germany.

The ECB’s Transmission Protection Instrument (TPI) provides a backstop against disorderly spread widening, but activation is contingent on EU member state pursuing “sound and sustainable fiscal and macroeconomic policies.” France deteriorating finances complicate the case for intervention, although broader contagion would increase pressure on the ECB to act.

Meanwhile, ECB Chief Economist Philip Lane highlighted the “increase in long-term interest rates constitutes a material tightening of financial conditions for the euro area.” That leaves EUR facing downside pressure from both rising fiscal risk and a potentially shallower ECB hiking cycle. Immediate support levels for EUR/USD are offered at 1.1200 (August-September 2024 double top) and 1.1111 (50% retracement of 2025-2026 uptrend).

BRAZIL

BRL and Brazilian assets are poised to open higher after Bolsonaro’s stronger than expected showing in the first round of the presidential election. Rightist Senator Flávio Bolsonaro of the Liberal Party (PL) won roughly 47% of the vote against 45% for leftist President Luiz Inácio Lula da Silva of the Workers’ Party (PT), overturning the narrow lead most polls had given the incumbent.

The result gives Bolsonaro momentum heading into the October 25 runoff. Bolsonaro’s plan for faster fiscal repair and lower taxes would add to the positive BRL outlook, already underpinned by Brazil’s attractive carry and strategic exposure to commodities linked to energy, AI, and defense.

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