The EUR/USD pair has demonstrated a calculated strength as the week concludes, maintaining a position near 1.1560, reflecting an increase of 0.16%. This movement comes as investors step back from the U.S. dollar, influenced by escalating political dysfunction in Washington and diminishing macroeconomic clarity. The ongoing U.S. government shutdown has reached its 38th day, significantly hindering the dissemination of crucial economic data, such as nonfarm payrolls. This situation has heightened uncertainty in the market, compelling traders to anticipate an earlier policy easing from the Federal Reserve. The U.S. Dollar Index decreased to 99.53, negating weekly gains after reaching a four-month peak above 100.21 earlier, a level that was not sustainable as yields weakened and market continued its most significant drop in seven months. The euro, previously impacted by disappointing manufacturing data in early autumn, has started to recover as investors seek alternative liquidity options beyond the dollar. The market narrative has shifted significantly from last month’s “King Dollar” dominance. Traders who had anticipated a stronger dollar due to elevated U.S. real yields are now reversing those positions in light of concerns regarding extended fiscal instability.
The lack of new Treasury supply auctions amid the shutdown, combined with declining consumer sentiment, has led to a diminished demand for the dollar as a safe-haven asset. The EUR/USD pair is currently fluctuating within the range of 1.1500 to 1.1600, establishing a consolidation phase beneath the 38.2% Fibonacci retracement level of the downtrend observed from May to September, specifically at 1.1593. The pair’s intraday range has significantly narrowed, indicating a potential buildup for a more substantial directional shift. Macro indicators from the U.S. persist in revealing underlying vulnerabilities. The University of Michigan Consumer Sentiment Index for November has decreased to 50.3, marking its lowest point since mid-2023 and falling significantly short of consensus expectations of 53.2. Inflation expectations for the upcoming year have increased marginally to 4.7%, up from 4.6%, whereas the five-year outlook has decreased to 3.6%, down from 3.9%. The New York Fed Consumer Expectations Survey indicated that one-year inflation forecasts have decreased to 3.2%, while three- and five-year expectations remain unchanged at 3.0%. The data indicates a subtle change — the short end continues to be resistant, while medium-term inflation shows signs of stabilization, strengthening the case for the Fed to consider rate cuts in the near future. The current market assessment indicates a 66% likelihood of a rate cut in December, an increase from the previous 48% just two weeks prior. The U.S. Treasury yields have adjusted accordingly: the 10-year yield decreased to 4.09%, a decline of nearly 17 basis points from the monthly high. Vice Chair Philip Jefferson indicated that the Fed ought to proceed “cautiously” in light of the data blackout resulting from the shutdown, suggesting a pause prior to the next policy adjustment.
The prudent approach further impacted the dollar and reestablished short-term support for the euro, especially as carry-trade flows into the dollar began to wane. In Europe, the overall landscape continues to show a blend of signals. Germany’s September trade surplus decreased to €15.3 billion, falling short of the anticipated €16.8 billion, primarily attributed to reduced exports to the U.S. and Asia. However, the decline in export volumes was somewhat mitigated by robust growth in the service sector and consistent industrial orders from within the euro area. In September, retail sales experienced a decline of 0.3% month-on-month, representing the second consecutive decrease. However, analysts observe that this downturn is less pronounced than the 0.6% drop recorded in August. The European Central Bank is navigating a complex situation: inflation throughout the bloc is currently at 2.8%, a decrease from 3.4% in August, while core inflation persists at a resilient 3.1%. Multiple ECB policymakers, such as Philip Lane and Isabel Schnabel, have emphasized that rate cuts are not being considered until there is a further decline in wage growth. Nevertheless, the widening interest-rate gap between the U.S. and the eurozone has halted its expansion for the first time this year — a structural shift that bolsters EUR/USD above 1.15. From a technical perspective, EUR/USD has established a medium-term base at the 1.1500 level — a point of considerable historical importance, having served as both support and resistance during various inflection points since 2019.
The pair has bounced back from its cycle low of 1.1391 recorded on August 1, with momentum indicators currently reflecting neutral-to-bullish signals. The Relative Strength Index has shown a recovery from 42 to 52, and the MACD lines are approaching a bullish crossover on the daily chart. Immediate resistance is positioned at 1.1593, aligning with the 38.2% Fibonacci retracement of the May–September decline. This is succeeded by levels at 1.1686 and 1.1748, corresponding to the 76.4% and 78.6% retracement levels of the significant 2021–2022 movement. A conclusive close above 1.1686 is expected to activate algorithmic buying, with targets set at the 200-day simple moving average of 1.1748. Support zones are identified at 1.1500, followed by 1.1462, and further down at 1.1344, which corresponds to the 200-day SMA — a critical threshold that distinguishes a pullback from a complete reversal. On a weekly scale, the pair’s structure indicates an emerging double-bottom formation with a neckline between 1.1631–1.1646, suggesting a potential recovery phase toward 1.1750–1.1800 if confirmed.
On the other hand, not maintaining 1.1500 could bring back the summer lows around 1.1390, which would weaken the bullish outlook. Interestingly, the euro has gained from a climate of global risk aversion. The recent selloff in U.S. equities, driven by AI developments, has seen the Nasdaq decline by 3% this week, with major players such as Tesla dropping 3.7% and Nvidia experiencing a significant 9.5% plunge, leading to a decrease in confidence regarding growth assets. Typically, such a sentiment shock would strengthen the dollar; however, traders diversified into the euro and the Swiss franc, citing concerns about the U.S. fiscal impasse and potential credit-rating downgrades. The EUR/USD correlation with U.S. equity volatility has turned negative over the past 10 sessions, indicating that demand for the euro is becoming more defensive than cyclical. Analysis indicates that speculative net shorts on the euro decreased by 21,000 contracts last week, representing the quickest short-covering since April. The shift indicates a restored belief that the euro is capable of maintaining its position above parity in the medium term, despite the U.S. monetary policy moving from a tightening stance to one of accommodation.