The euro fell 0.8% to 1.1161 per dollar in Asian trading on Monday, marking the lowest level since May 2025. Hedge funds delivered the main blow, selling the single currency even before European markets opened. Traders reported that Asian funds were selling euros for dollars on the spot market. The dollar benefited, the euro lost, and holders of long positions who had bet on a continuation of September's rebound were hit.

The mechanics of the drop merit attention. Spot selling pushed quotes to levels that triggered option barriers and prompted additional option-related selling. This is a classic chain reaction in a thin Asian session: each wave of selling triggers the next, and there is little liquidity to cushion the move. For scale, compare with early September, when the pair traded in a sideways channel with a midline near 1.1610, a lower boundary at 1.1588 and support at 1.1568, and buyers were playing the ECB's September rate hike. The euro now trades below all those levels, and the prior technical picture has ceased to apply.

The second driver is the dollar. The dollar index on Monday rose to the highest since late June, supported by expectations that the Fed may need three more rate hikes by July to tame inflation. Notably, the market ignored the weak jobs report: September payrolls rose by only 29,000, unemployment was 4.2%, and wages rose 0.1% month-on-month. The explanation is simple: with US inflation at 3.4% and diesel near $6 a gallon, the market looks at prices rather than hiring, and weak employment has ceased to be an argument against immediate tightening while leaving longer-term expectations intact.

An additional catalyst was politics for the euro. Reports that Spanish officials are preparing for early elections layered onto a week of nervousness around France, where the opposition has shown little appetite to compromise with Emmanuel Macron's outgoing administration. A poll last week suggested Marine Le Pen and Jean-Luc Melenchon would advance to the second round in 2027, presenting two different market scares. The French risk premium versus Germany reached levels on Friday not seen since 2011, and this promptly weighed on the euro.

The most unpleasant signal for the euro came from JPMorgan: the bank believes the decline is not over. JPMorgan's report warned that the euro still fails to price in widening risk zones and the related tail scenarios and suggested the implications are more about the Swiss franc and the yen than about the dollar, noting that the euro-franc rate appears stretched and may fall further.

Why did the ECB's rate hike not protect the euro? The fact is that political risk is costlier than interest rate differentials. The deposit rate is 2.50% after the September 10 hike, the flash CPI for September accelerated to 3.8%, and the market expects an October step. In normal circumstances that would support the currency. Now the opposite is happening. Each tightening in the presence of weak demand and expensive energy hits the economy; that raises debt burdens on the periphery and forces investors to demand a larger risk premium before buying the euro. The ECB cannot offset French and Spanish election risk with its tools, and that is its main constraint.

In my view, the next sessions will remain dollar-friendly. If no further news emerges from Paris or Madrid, the euro's pullback is likely to be limited to a technical bounce from oversold levels, not a trend reversal. A worse scenario would see widening France and Italy spreads bring hedge funds back into euro selling even before European data are released.

A technical picture for EUR/USD shows that buyers need to reclaim 1.1210 to target a test of 1.1259. From there a move to 1.1307 is possible, but achieving that without support from large players will be difficult. On the downside, I expect significant buyer interest only around 1.1165. If there is no one there, it would be reasonable to wait for a fresh low at 1.1133 or to open longs from 1.1097.

A technical picture for GBP/USD unveils that pound buyers need to take immediate resistance at 1.3225 to target 1.3265; breaking above that will be difficult. The farther target is the 1.3300 area. On a decline, bears will try to seize control of 1.3180. If they succeed, a break of the range would inflict serious damage on bulls and push GBP/USD toward 1.3145 with the scope to reach 1.3110.