Fundamental Overview
The USD rise stalled last week as the US government shutdown delayed many key US economic reports. The dollar “repricing trade” needs strong US data to keep going, especially on the labour market side, so any hiccup on that front is likely to keep weighing on the greenback. The market pricing is now back to 46 bps of easing by year-end and 112 bps by the end of 2026. This could still be too dovish, but we will need strong data to reprice.
In the absence of the government data, an October rate cut is now seen as a done deal. The reality is that an October cut was never really in question. It’s the December cut that could be priced out in case the data strengthens. We still have three NFP and two CPI reports before the December meeting.
On the EUR side, nothing has changed in the meantime. The ECB left interest rates unchanged at the last meeting as widely expected with limited forward guidance other than the usual data-dependent approach. President Lagarde made it clear that the central bank finished cutting rates after she said that growth risks are balanced and the disinflationary process was over. The ECB is not expected to adjust rates for a long time unless we get significant deviation from their inflation target.
Today, the euro dropped as the French PM Lecornu resigned bringing some fresh political risk. Such events are generally short-lived as seen also at the end of August when then French PM Bayrou unexpectedly called for a confidence vote. The euro fell but a couple of days later erased all the losses.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD fell into the major upward trendline around the 1.1650 level. This is where the buyers are likely to step in with a defined risk below the trendline to position for a rally into a new cycle high. The sellers, on the other hand, will want to see the price breaking lower to extend the drop into the 1.1572 level next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that euro’s fall stalled near the major trendline as the buyers started to pile in. There’s not much else we can add here as the buyers will look for a rally into new highs, while the sellers will look for a break lower to target the support zone around the 1.16 handle.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is trading near the lower bound of the average daily range for today. This is where we can generally see a pullback or some consolidation. In this case, it could give the buyers more conviction to pile in around these levels and target the 1.1780 high, while the sellers are better off to wait for another day as the risk of selling right at the daily low is high.
Upcoming Catalysts
On Thursday we have Fed Chair Powell speaking and the US Jobless Claims (if the shutdown is lifted). On Friday, we conclude the week with the University of Michigan Consumer Sentiment report.
