The EUR/USD pair is currently positioned at approximately 1.1566 during late New York trading, showing a slight recovery from the previous week’s low of 1.1467, the lowest point since early August. The rebound came after a two-day rally that pushed the pair above the 1.1550 handle; however, the overall sentiment remains cautious as markets grapple with absent U.S. economic data, uncertainty surrounding Federal Reserve policy, and increasing indications of stagnation in the Euro Area. Following a decline from 1.1730 in mid-October, prompted by the Fed’s 25 basis point rate cut without a definitive outlook for December, the pair remains within a narrow trading range influenced by risk aversion and speculative short-covering activities. The current U.S. government shutdown, which has now exceeded six weeks, has resulted in the suspension of Non-Farm Payrolls and data releases for two months in a row, creating a void for traders seeking official validation of growth or inflation patterns. This vacuum has hindered the Federal Reserve’s guidance and diminished clarity across all dollar-denominated assets. In October, the Fed’s assertion of being “data-dependent” quickly lost its significance, compelling money-market traders to adjust their expectations to a mere 30 percent likelihood of an additional rate cut in December—down from almost 70 percent prior to the blackout. Concurrently, corporate America is signaling caution: significant layoffs at Amazon, UPS, and regional banks have undermined confidence in the strength of the labor market. The lack of official metrics compels investors to depend on alternative datasets, which indicate that hiring momentum has fallen to its lowest level since 2020. The declining conditions in the U.S. have led to a 1.1 percent drop in the USD Index over the week; however, the euro has faced challenges in taking advantage of this due to its own growth limitations.
On the European side, ECB President Christine Lagarde has exhibited a notable change in tone over recent meetings. In early September, she stated that “the disinflationary process is over,” suggesting the conclusion of rate cuts. However, by late October, her tone shifted as data revealed contractions in industrial production and consumer spending in Germany (−0.4 percent m/m) and France (−0.2 percent). The eurozone composite PMI stands at 47.9, indicating a continuation of recessionary momentum. There is growing skepticism among investors regarding the ECB’s ability to maintain its deposit rate at 3.75 percent past Q1 2026 without incurring the risk of deflation. The notable disparity between the ECB’s cautious optimism and the hard data has rendered the euro vulnerable to yield-differential pressures. The German 10-year Bund yields 1.92 percent, while the U.S. 10-year Treasury stands at 4.55 percent, resulting in a carry spread that has reached a three-year high of 263 basis points. The persistent gap keeps EUR/USD tethered beneath 1.1600, even amid dollar weakness in other markets. The 1.1500 level serves once more as the pivotal axis for the pair. It has served as a crucial turning point for almost ten years—initially functioning as resistance from 2018 to 2020, and subsequently transitioning to support following the rebound from the 2022 energy crisis. Last week’s dip to 1.1467 prompted significant buying from European institutions, which perceived the level as oversold territory. However, volume analysis indicates that this activity reflects only short-term positioning rather than true reversal flows.
The pair continues to exhibit a pattern of lower highs and lower lows following the Federal Reserve’s decision on September 17. The 50-day moving average at 1.1628 serves as a resistance level for recovery attempts, whereas the 200-day average around 1.1370 establishes the long-term support base. The daily RSI is currently positioned around 42, indicating a slight recovery without exhibiting significant momentum. For bulls to regain control, EUR/USD must close above 1.1620, which would open the way toward 1.1680–1.1730; failure would re-invite sellers targeting 1.1450 and possibly 1.1380. The projected range for the upcoming week is set between 1.1445 and 1.1680. Institutional desks characterize the present market as “directionless with thinning liquidity.” Options volumes have decreased by 27 percent month-over-month, and open interest in EUR/USD futures on the CME has fallen to 178,000 contracts, marking the lowest level since 2022. Large banks are maintaining flatter books, indicating a reluctance to assume overnight risk until Washington concludes the data blackout. Algorithmic strategies are at the forefront of intraday price movements, resulting in regular 20–40 pip whipsaws near critical pivot levels. Inter-bank sources indicate that European corporate exporters have utilized the rebound above 1.1550 to re-hedge dollar receivables, establishing a supply layer that constrains further upside movement. U.S. hedge funds maintain a net-long position in USD futures amounting to $12.4 billion, indicating that macro positioning continues to support dollar strength as data becomes available again.
Geopolitical risk presents an additional constraint on the recovery of the euro. The intensifying trade conflict between Washington and Beijing, along with the resurgence of tariff discussions from President Trump, has rekindled worries regarding European export vulnerability. The eurozone’s reliance on Chinese demand, amounting to approximately €230 billion in yearly exports, exposes it to risks associated with any deceleration caused by new U.S. restrictions. Energy markets are also influencing sentiment. Brent Crude Oil (BZ=F) is currently trading around $63.10, a decline from $71 last month. This decrease is alleviating inflationary pressures, yet it is constraining the profit margins of European refiners and impacting commodity-linked equities. The Euro Stoxx 50 Index has decreased by 1.3 percent month-over-month, indicating a sense of caution that directly impacts EUR/USD via cross-asset correlations. In the current climate, investors prioritizing safety have directed their funds towards the Swiss franc and Japanese yen, resulting in the euro lagging behind within the G10 complex. The EUR/CHF cross has declined to 0.9550, marking its lowest point since May, suggesting that a focus on capital preservation continues to prevail throughout continental Europe. The policy divergence that previously characterized this pair has contracted to a state of near paralysis on both sides. The Fed’s failure to articulate a clear strategy for 2026 stands in stark contrast to the ECB’s reluctance to acknowledge an impending recession. Both institutions are currently hindered by political and fiscal limitations: the Fed is impacted by Congress’s shutdown, while the ECB faces challenges due to fragmentation within the eurozone. Traders are currently assessing relative stagnation rather than growth differential. Nonetheless, the comparative real yields continue to support the dollar.
At present inflation figures—U.S. core PCE at 2.3 percent compared to Eurozone core HICP at 1.8 percent—the real yield premium stands at +1.8 percent for the U.S. The prevailing structural advantage maintains a downside bias for speculative accounts in EUR/USD until signs of renewed growth in Europe emerge. Should EUR/USD maintain daily closes above 1.1550, intraday algorithms may drive the corrective rally further toward the 1.1600–1.1620 range. A breach above 1.1630 would aim for the 1.1680 Fibonacci zone, based on the May–September swing. On the other hand, a resurgence of selling pressure beneath 1.1500 could reveal 1.1440 and potentially 1.1370, which align with the pivot low from March. Volatility is currently low at 6.2 percent implied, marking the lowest level since July, indicating a potential explosive movement when data resumes. Options desks indicate that put open interest is concentrated at 1.1450, while calls are positioned at 1.1650. This establishes a compression band that may experience a significant release following the Fed’s communication window on November 15. Retail trading data indicates that 62 percent of positions are still net-long EUR/USD, which serves as a contrarian bearish signal since the beginning of October. Market analysts observe that the movement towards 1.1560–1.1570 was primarily a result of profit-taking from short positions established around 1.1700, rather than true accumulation. Until fundamental catalysts shift, the trajectory of least resistance continues to trend sideways to lower.