The EUR/USD pair remained around 1.1590, experiencing a decline for the fourth consecutive session as the U.S. dollar index approached 99.00, influenced by a resurgence in safe-haven demand in anticipation of U.S. CPI data and increasing tensions in U.S.–China trade relations. The pair has declined approximately 1.3% from last week’s peak of 1.1740, indicating a more robust dollar sentiment as market participants prepare for inflation data anticipated to influence the Federal Reserve’s trajectory heading into year-end. News indicating that Washington is set to impose new export restrictions on software-powered goods to Beijing has reignited trade tensions and bolstered the dollar. The U.S. Commerce Department’s initiative, perceived as a response to China’s restrictions on rare-earth minerals, has expanded the yield differential between U.S. Treasuries and European bonds. The 10-year yield has stabilized around 4.62%, which sustains the dollar’s yield advantage and exerts technical pressure on EUR/USD.
Concurrently, the optimism surrounding next week’s Trump–Xi summit in South Korea provided a momentary reprieve, as traders considered the potential for “several agreements” on energy and agricultural trade. However, market participants continue to exercise caution, concerned that negotiations may not alleviate tensions, particularly in light of the White House’s intention to enhance export oversight. The current cautious sentiment is evident in risk assets, as futures show a modest increase while volatility remains elevated. The Eurozone economy is experiencing a decline in momentum, as evidenced by data indicating consumer confidence at -14.2. This figure is slightly above expectations but aligns with persistently weak household sentiment. A poll conducted from October 15 to 22 revealed that 57% of economists predict the European Central Bank will keep its deposit rate at 2% until 2026, with no adjustments expected before 2027. Vice President Luis de Guindos emphasized that inflation risks are “balanced,” while growth continues to be subdued.
The market is currently directing its attention towards the ECB’s policy meeting on October 30, where it is anticipated that officials will reaffirm a data-dependent approach. Market participants anticipate that Philip Lane will emphasize the deceleration in credit growth and the necessity for patience prior to any potential policy shift. The euro’s struggle to draw in yield-driven inflows highlights its susceptibility in the face of a strong dollar environment. From a technical perspective, EUR/USD is exhibiting a distinct descending channel on the 4-hour chart. The pair was unable to maintain a rebound above 1.1625, with the 50-day EMA (1.1631) and 200-day EMA (1.1668) limiting any potential gains. The RSI at approximately 44 indicates ongoing bearish momentum. Immediate support is positioned at 1.1538, with the subsequent level at 1.1470, marking the lower boundary of the existing channel.
A significant breach beneath 1.1538 may pave the way to 1.1460, whereas a close exceeding 1.1650 would alter market sentiment and reveal resistance at 1.1710. Data indicates a 5% decline in speculative euro longs last week, implying that short-term traders are decreasing their exposure in anticipation of significant data releases. The volatility index for EUR/USD options increased to 7.8%, marking its peak since mid-September, indicating intensified positioning in anticipation of CPI.