The currency markets are experiencing a relatively quiet week, largely due to a lack of significant economic data, compounded by the ongoing U.S. government shutdown and national holidays in China. The absence of fresh data releases has stifled volatility for major foreign exchange pairs. Meanwhile, global stock markets continue to rise, with many indices reaching record highs. Precious metals are also on the upswing, highlighted by gold futures hitting $4,000 for the first time.
In the forex sector, the euro is under pressure, particularly due to political instability in France. Reports indicate that outgoing Prime Minister Sébastien Lecornu has until Wednesday evening to establish a government amid a deeply divided parliament. Should he fail, the political landscape may shift towards a technocratic government or even lead to early elections. Nonetheless, the market appears to have absorbed the uncertainty, showing only a mild impact on the euro compared to other European currencies.
With the U.S. government shutdown in effect, there are no scheduled official data releases, meaning traders’ attention is redirected to speeches from Federal Reserve officials, including Raphael Bostic and Michelle Bowman. However, without recent labor market data to inform their comments, significant shifts in market expectations for potential rate cuts are deemed unlikely.
On the economic front, the week has been uneventful outside the U.S., with a notable 0.8% decline in German factory orders for August further weighing on the euro. As the week progresses, key focus points for the Eurozone will include German industrial production data and a potential speech by European Central Bank President Christine Lagarde, both slated for Wednesday.
From a technical perspective, the EUR/USD exchange rate has found some support around the 1.1650 mark, aided by a bullish trend line connecting the lows from May and August. Despite this, there hasn’t been a significant upward movement. Price action suggests a slight bearish sentiment without a catalyst to ignite a stronger rally. Market analysts believe downside risks are increasing for the euro, particularly amid French political concerns, but maintain that risks for the euro’s decline may be limited due to bearish sentiment surrounding the U.S. dollar, stemming from the Fed’s easing policies.
Currently, the market is in a range-bound phase. If the 1.1650 level gives way, traders will look at 1.1620 and 1.1560 as the next support levels to monitor. Conversely, resistance is expected at 1.1700, with additional barriers positioned at 1.1725, where the 21-day exponential moving average aligns with a short-term bearish trend line. A break above this line could signal renewed bullish momentum for the euro against the dollar.
