The EUR/USD pair is showing signs of recovery, currently trading around 1.1655, as the euro continues its upward movement in response to a declining U.S. dollar and a significant change in market sentiment regarding anticipated Federal Reserve rate cuts. Following a decline to approximately 1.1540, the pair surpassed significant resistance at 1.1630, validating a double-bottom reversal pattern that indicated the conclusion of its recent downtrend. The neckline breakout, bolstered by enhancing momentum and robust involvement from European buyers, indicates that the euro is recovering its stance following weeks of cautious trading. The 50-day EMA at 1.1633 has transitioned from a resistance level to a support level, while the 200-day EMA around 1.1679 represents the next significant obstacle. A sustained daily close above 1.1680 may pave the way for a continued ascent toward 1.1720 and 1.1778, thereby strengthening a short-term bullish outlook.
The macro backdrop enhances the optimistic outlook for EUR/USD. The U.S. Dollar Index has declined to 98.60, reaching a one-week low, and has now experienced three consecutive days of losses as market participants nearly fully anticipate two 25-basis-point rate cuts — one projected for October and another for December. The dovish stance has been underscored by the Fed’s Beige Book, which indicated a deceleration in economic growth, subdued labor market metrics, and escalating input costs. The data supports the perspective that the central bank’s forthcoming actions will emphasize stability rather than solely focusing on controlling inflation. Reports indicates a 94.6% likelihood of a rate cut to the 3.50%-3.75% range by year-end, which diminishes the dollar’s yield advantage relative to the euro. The decrease in the value of the U.S. dollar is influenced not just by monetary factors, but also by political dynamics. The ongoing U.S. government shutdown, which has now reached its third week, has intensified investor uncertainty. The ongoing impasse regarding federal funding and spending priorities has heightened apprehensions about possible rating downgrades and fiscal stalemate in Washington. Historically, such episodes have led to a decline in dollar demand as investors pursue stability in alternative currencies, with the euro emerging as a significant beneficiary.
Furthermore, the resurgence of trade tensions between the U.S. and China is negatively impacting global risk sentiment. The announcement of a 100% tariff by President Trump on Chinese rare earth exports, coupled with Beijing’s retaliatory comments, has reignited concerns regarding a potential extended trade standoff. This escalation occurs concurrently with the Fed indicating a shift towards policy easing, resulting in a confluence of elements that are steering capital away from the dollar. Market participants are shifting their focus to assets that are viewed as having reduced political risk—particularly the euro and gold, both of which have experienced significant increases in recent trading sessions. From a technical perspective, EUR/USD indicates evidence of a confirmed bullish reversal. The pair has successfully reclaimed the neckline of the double-bottom formation at 1.1630 and has also surpassed the descending channel that has limited price action since late September. The Relative Strength Index has increased to 59, indicating a resurgence in buying interest while remaining below overbought levels, which suggests potential for additional gains without major obstacles. A consistent advance beyond 1.1680 is expected to attract momentum traders aiming for 1.1730, while 1.1800 stands out as the key short-term resistance point.
Moving averages are converging, indicating a technical signal that frequently precedes trend transitions. The 100-day SMA, presently situated beneath the 200-day SMA, suggests that bearish momentum is diminishing. The convergence of these two moving averages suggests a possible bullish crossover, strengthening the outlook for a medium-term trend reversal. Momentum oscillators reflect this perspective: although the Stochastic indicator is positioned close to overbought levels, it maintains stability, indicating ongoing buying strength instead of fatigue.