The recent rise of the US dollar encountered a halt as the ongoing government shutdown postponed many crucial economic reports. Analysts suggest that the dollar’s potential for further gains hinges significantly on robust data, particularly regarding the labor market. Any setbacks in this area could continue to exert pressure on the greenback. Currently, the market anticipates approximately 46 basis points of easing by the year-end and 112 basis points by the end of 2026. While these predictions may still be considered somewhat dovish, the necessity for strong economic data to prompt a repricing remains evident.
In this context, expectations have shifted towards an October rate cut, which now appears to be almost a certainty. However, the likelihood of a December cut is being re-evaluated, especially if incoming data shows strength. Market participants are aware that there are still three Non-Farm Payroll (NFP) reports and two Consumer Price Index (CPI) reports scheduled before the December Federal Reserve meeting, which will further shape expectations.
On the European front, the situation remains relatively stable following the European Central Bank’s (ECB) decision to keep interest rates unchanged at its last meeting, a move widely anticipated. ECB President Christine Lagarde indicated that the central bank had concluded its rate-cutting phase, citing balanced growth risks and the end of the disinflationary process. Any changes to rates are unlikely in the near term unless there are significant deviations from the ECB’s inflation targets.
However, the euro experienced some volatility due to the resignation of French Prime Minister Lecornu, introducing a new element of political risk. Such incidents generally tend to have short-lived effects on the currency market; a similar occurrence in August saw the euro quickly recover after an initial dip following a confidence vote called by the previous Prime Minister.
In terms of technical analysis for the EUR/USD currency pair, recent movements indicate a critical testing level around the 1.1650 mark, coinciding with a major upward trendline. Buyers are expected to enter the market at this level, aiming for a rally that could lead to new cyclical highs. Conversely, sellers would prefer to see a price drop below this trendline, potentially extending towards the 1.1572 support level.
On the four-hour chart, the euro’s decline has stalled near this trendline, with buyers beginning to assert themselves. The outlook hinges on whether further upward movement can sustain itself or if sellers will re-enter the market to break lower towards the support zone around 1.1600.
Analyzing the one-hour chart reveals that the current price is positioned near the lower boundary of the average daily trading range. This scenario could lead to either a pullback or periods of consolidation, encouraging buyers to increase their positions around these levels, targeting a move towards the 1.1780 high. Sellers, however, may find it challenging to justify entering the market at this point due to the elevated risk of selling at daily lows.
Looking ahead, the upcoming week presents several potential catalysts for market movement. Fed Chair Jerome Powell is slated to speak on Thursday, with the US Jobless Claims report expected to follow if the government shutdown is resolved. The week will conclude with the University of Michigan Consumer Sentiment report on Friday, which could provide further insights into economic conditions and impact market sentiment.
