The EUR/USD pair is currently positioned at approximately 1.1740 following a series of sessions characterized by limited volatility. The recent four-day rally that momentarily elevated the euro to 1.1755 has come to a halt, indicating a balance between the dollar’s weakness associated with the U.S. government shutdown and the softer economic fundamentals in Europe. Wall Street’s gains and the dollar’s intraday rebound have caused the pair to retreat from its highs; however, the euro continues to show resilience above the 1.1710 support level, consolidating near the levels observed in mid-September. The ongoing political impasse in the U.S. has resulted in the closure of federal agencies and has hindered the dissemination of essential labor statistics, such as the September nonfarm payroll figures. This situation has left the markets without a key indicator that the Federal Reserve relies on prior to its meeting scheduled for October 29. The ongoing shutdown is incurring a daily expense of $400 million in lost wages for 750,000 furloughed workers, exacerbating the existing political dysfunction during a critical economic period.
In light of data blackouts, traders are increasingly relying on private surveys. The ADP Employment Report indicated a reduction of 32,000 private sector jobs in September, marking the most significant drop since March 2023. Additionally, the August figures were adjusted downward to -3,000 from the previously reported +54,000. The observed weakness has led to an increase in Fed cut expectations: current market pricing indicates a 99% likelihood of a 25 basis point cut in October, along with an 86% probability of an additional cut in December. Throughout the euro area, the data has not been particularly promising. The Eurozone unemployment rate increased to 6.3% in August, up from 6.2%, surpassing forecasts for stability. Inflation has shown a slight increase: the September Harmonized Index of Consumer Prices rose to 2.2% YoY, while core inflation remained steady at 2.3%, indicating persistent price rigidity despite a slowdown in growth momentum. The ECB has maintained its “meeting-by-meeting” guidance. President Christine Lagarde described the current policy as “in a good place,” while members of the Governing Council highlighted the importance of flexibility in light of balanced risks. Currently, market expectations indicate that the ECB will maintain its stance until 2026, with any policy adjustments contingent upon a resurgence in inflation or a further decline in growth.
The daily chart indicates that EUR/USD is positioned beneath a flat 20-SMA, while maintaining a position above a slightly bullish 100-SMA around the 1.1600 level. On the 4-hour chart, RSI is positioned around 51, and momentum appears to be muted, indicating that markets are in a holding pattern, anticipating a catalyst. Data indicates that net euro longs have decreased to 114,000 contracts, marking the lowest level since July, while shorts have contracted to 165,000 contracts. Open interest increased to a two-week peak of 859,000, indicating that traders are active yet exercising caution. ETF flows into euro-based assets have decelerated, indicating a reluctance to make bold investments in the common currency until the U.S. shutdown is addressed or more definitive signals from the ECB are provided.
The landscape of trade continues to be an unpredictable factor. Washington upholds a 30% tariff on imports from China, whereas Beijing enforces 10% duties on goods from the United States. A truce has postponed further escalation; however, auto tariffs continue to be unresolved, maintaining pressure on European car exporters. In the interim, a compromise between the U.S. and the EU has led to a reduction in certain industrial tariffs; however, this adjustment is insufficient to alter the trade balance significantly. For EUR/USD, these tensions constrain potential gains as European exporters face the threat of margin compression should demand weaken further.