The EUR/USD pair is experiencing notable downward pressure, trading near 1.1550, which is its lowest level in almost three months. This shift illustrates how investors are adapting to the differing monetary strategies of the Federal Reserve and the European Central Bank. The euro is showing signs of weakness, particularly against the backdrop of a more tempered inflation scenario in the U.S., with the currency pair dropping over 2.8% so far this month. This decline is shaped by underwhelming Eurozone economic data, a rising U.S. dollar, and lowered hopes for interest rate reductions. The U.S. Dollar Index is currently positioned around 99.70, approaching a three-month peak, as market participants analyze the Federal Reserve’s recent decision—a 25-basis-point reduction to a range of 3.75%–4.00%—alongside Chair Jerome Powell’s indication that additional easing is “far from a foregone conclusion.” This language adjusted expectations, leading to a rise in Treasury yields and a renewed interest in the dollar, whereas the euro continued to lack support from ECB policy. Even with the Fed’s choice to cut rates for the second time this year, Powell’s demeanor after the meeting surprised the markets. The vote highlighted a distinct split among policymakers: Governor Stephen Miran pushed for a 50-basis-point reduction, while Kansas City Fed President Jeffrey Schmid resisted any changes, citing inflation still exceeding the target level. Powell’s comments pushed the 10-year U.S. yield above 4.10%, reflecting an increase of almost 30 basis points from the low of the previous week. Market participants have decreased the probability of a December rate cut from 91% to 64%, which has limited the possible drop of the dollar.
The EUR/USD has seen a drop of almost 4% since late August, representing its longest period of losses since mid-2022. Every effort to rise above 1.1620 has quickly faced selling pressure. The latest economic indicators from the Eurozone point to a concerning future. In October, Germany’s retail sales saw a modest rise of 0.2%, which was below the expected 0.4%. Meanwhile, French inflation experienced a slight increase of 0.1%, while Italy noted a decrease of –0.3%. The Eurozone’s flash Harmonized Index of Consumer Prices showed a year-on-year rise of 2.1%, with core inflation holding steady at 2.4%. Both figures met expectations, suggesting a decrease in price pressure. The European Central Bank is navigating a situation where the combination of slow growth and falling inflation suggests that increasing rates is off the table, and reducing them is not expected in the near future either. The ECB’s Deposit Facility rate stands at 2.00%, a level that has remained unchanged since July. President Christine Lagarde offered limited forward guidance, acknowledging that growth “remains subdued” and emphasizing that the Governing Council needs more data before making any decisions on easing measures. Current market expectations suggest that the initial ECB rate cut is unlikely to happen before Q2 2026, putting the euro in a vulnerable position against currencies with higher yields. The growing difference in policies has become the central theme for EUR/USD. Even though the Fed anticipates rates to hover around 4% until mid-2026, the ECB’s cautious strategy offers little motivation for investors to hold onto euros. The U.S. economy is showing growth that exceeds expectations, supported by robust consumer spending and a labor market that reliably adds between 150,000 and 180,000 jobs each month, while the Eurozone is nearing recessionary conditions. The Eurozone composite PMI has stayed around 48.5, signaling a contraction for the fifth month in a row. The difference in fundamentals leads to a continuous need for dollars, particularly among international investors seeking better yields and reliable liquidity.
The announcement of a U.S.–China trade agreement, leading to a decrease in tariffs from 57% to 47%, initially boosted global risk sentiment; however, it ultimately favored the dollar against the euro. The agreement, concluded after talks between President Donald Trump and President Xi Jinping, included commitments related to agricultural purchases, exports of rare-earth elements, and regulations concerning fentanyl. Markets initially saw the agreement as a sign of stability; however, the improvement in the global trade outlook is believed to benefit the U.S. economy more prominently. The Eurozone trade surplus, once a notable benefit, has decreased due to elevated energy import costs and a drop in demand for manufactured exports. Consequently, even with the surge in equity markets, the euro remained behind, as traders consistently offloaded near the 1.1600 mark. EUR/USD is currently following its downward trendline set from the September peak of 1.1830, suggesting continued bearish control. The pair is presently situated below the 20-day EMA at 1.1630, the 50-day EMA at 1.1618, and the 200-day EMA at 1.1653, with all moving averages showing a declining trend. The Relative Strength Index is currently around 37, suggesting slight oversold conditions, but it has not yet indicated a reversal signal. The price action near 1.1545 is crucial; a daily close below this level could open the door to targets at 1.1510 and 1.1477, with a potential drop extending to 1.1390, which represents the August low. Bulls must regain 1.1620 to test 1.1669 and 1.1728; however, given the macro backdrop, any upward movements are anticipated to be corrective rather than structural. Investor sentiment towards the euro has steadily declined as funds flow back into the dollar. Recent institutional surveys show that portfolio managers have decreased their euro exposure for the fourth week in a row, resulting in the lowest positioning since June. Meanwhile, the demand for the dollar has been strengthened by strong corporate earnings in the U.S. and steady capital inflows. The present risk sentiment is somewhat optimistic due to the trade agreement; nonetheless, the dollar’s defensive appeal remains dominant.
The volatility of EUR/USD, as shown by the three-month implied vol index, is now at 6.3%, reaching its highest point since August. This indicates that traders are preparing for major directional changes as the market finds stability near multi-month lows. Short-term charts show early signs of stabilization; however, the underlying structure remains fragile. On the 4-hour timeframe, a cluster of small-bodied Doji candles near 1.1550 suggests a period of uncertainty following a notable decline. A modest rebound towards 1.1590 or 1.1620 appears probable before the downward momentum resumes. The bearish engulfing candle seen earlier this week has confirmed the dominance of sellers, and any intraday rally exceeding 1.1600 has quickly been turned back. Market depth data from EBS and Refinitiv show increased dollar buying interest around 1.1540, suggesting that liquidity providers anticipate further euro weakness in early November. The present situation regarding inflation is essential. Even though the headline CPI has eased to 2.1%, the ECB’s models indicate that the fundamental pressures in services remain persistent. As winter approaches, the energy risk in Europe has come back into focus. Natural gas prices, although much lower than the highs seen in 2022, have seen a 12% increase so far this month due to supply issues in Norway. A fresh surge could place further strain on industrial production, thus strengthening the ECB’s hesitation to adopt easing strategies. The allocation of financial duties among member states obstructs a robust policy reaction, leaving monetary tools as the sole stabilizing element. The current macroeconomic uncertainty is influencing investor confidence, subsequently affecting EUR/USD, which is now acting as a gauge for global risk and the stagnation of Eurozone policy.