EUR/USD experienced a decline from mid-September highs exceeding 1.1800, reaching a two-month low around 1.1540 before recovering to approximately 1.1620 as the weekend approached. The sequence indicates that positioning was biased towards short positions in anticipation of U.S. policy risk and tariff news, which then saw a partial reversal as safe-haven flows into the dollar diminished throughout the day. The price is currently functioning within a narrow, tradable range that has consistently been significant for intraday trading desks: 1.1571 on the lower end has served as a speculative pivot, while the 1.1710 area limits upward movements when U.S. yields stabilize. Immediate resistance is positioned at 1.1630, 1.1690, and 1.1725, effectively capping every rebound since Wednesday; a daily close exceeding 1.1700 would indicate that the bulls are taking more decisive action beyond mere covering. The pair continues to trade below its 50- and 100-day moving averages, a setup that generally results in brief countertrend rallies unless demonstrated otherwise. The 200-day is positioned significantly lower—around 1.1220—serving as a reminder to long-term investors that the primary upward movement from early summer has already relinquished a portion of its buffer. Momentum has stabilized but has yet to turn: the RSI, currently near 47, has exited oversold conditions without surpassing the mid-50s, which is typically where sustained upward movements commence. The responsibility lies with buyers to shift 1.1700 from a cap to a floor; in the meantime, upward movements towards 1.1630–1.1725 draw in supply.
Three catalysts have shifted the dollar narrative within just one week. Initially, the resurgence of trade-war rhetoric from Washington, which included a declared intention to impose a 100% tariff on Chinese imports, triggered a traditional risk-off reaction that initially supported the dollar while negatively impacting pro-growth currencies. Secondly, the current U.S. government shutdown has restricted the flow of official data and heightened uncertainty regarding short-term growth prospects. The FOMC minutes indicated a division within the committee regarding the speed of easing, despite market expectations assigning significant probabilities to at least one 25 bp cut by the end of October. The recent fluctuations in EUR/USD demonstrated volatility: the pair dipped below 1.1600 on Thursday amid a flight to safety, before rebounding to around 1.1620 on Friday as equity markets found stability and expectations for rate cuts strengthened. The key takeaway is straightforward and tied to pricing dynamics: should tariffs transition from mere threats to established timelines amid an ongoing shutdown, the impact on growth could weigh down risk assets and bolster the dollar during periods of stress; conversely, if the Fed signals a strong inclination towards rate cuts, U.S. yields may decline, allowing the euro to gain traction above 1.1600.
The recent political turbulence in France, initiated by the prime minister’s resignation followed by a swift reappointment, caused a temporary decline in sentiment, which began to recover towards the end of the week. Germany’s recent factory orders and industrial production figures highlighted a slow growth trajectory, a context that limits the euro’s potential to advance without a more robust U.S. yield-curve influence. At the policy level, ECB commentary indicating that disinflation is largely on track and that policy is “in a good place” diminishes the chances of unexpected hawkish moves. Analysis of EUR/USD pricing indicates that Europe is not providing the necessary upward momentum; the pair’s significant fluctuations continue to depend on U.S. interest rates, the direction of tariffs from Washington, and the overall global risk sentiment.
The data slate is configured to enable repricing on both sides of the cross. In the U.S., CPI, PPI, and Retail Sales are positioned within a high-volatility window. A softer CPI-PPI sequence combined with weaker retail demand generally leads to a decline in Treasury yields along the curve and exerts downward pressure on the dollar, potentially allowing EUR/USD to reach levels between 1.1690 and 1.1725. On the other hand, persistent core prints or robust consumption could strengthen the dollar and bring back tests of 1.1600 and 1.1571. In the Eurozone, Germany’s HICP and the ZEW survey provide a timely assessment of inflation trends and expectations; any letdown in these indicators typically limits euro gains, even when the dollar is retreating from its peaks. Monitor the Fed’s Beige Book tone closely—should labor softness and margin pressure prevail, the market is likely to incorporate cuts and exert downward pressure on the dollar.