Fundamental Overview
The USD came under some pressure on Friday as the risk-off sentiment caused by Trump’s threat of substantially increasing tariffs on China weighed on Treasury yields. Over the weekend, we had more soothing comments from Trump and other US officials which triggered a recovery in risk sentiment.
The positive mood is weighing a bit on the greenback amid lack of bullish catalysts. Domestically, nothing has changed for the US dollar as the US government shutdown continues to delay 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 shifted more dovish with 47 bps of easing by year-end and 115 bps cumulatively by the end of 2026. The BLS announced last week that it will release the US CPI report despite the shutdown on October 24, so that’s going to be a key risk event. In case we get hot data, we will likely see a hawkish repricing in interest rates expectations with the December cut being priced out. Conversely, a soft report shouldn’t change much in terms of pricing, but it will likely weigh on the greenback anyway.
On the EUR side, the single currency came under some pressure last week following the resignation of the French PM Lecornu on Monday. Just four days later though, Lecornu was reinstated as French PM and announced a new cabinet. He will now have to present a 2026 draft budget before the deadline tomorrow. That will give parliament the required 70 days to scrutinise the plan.
On the monetary policy side, nothing has changed. The ECB is not expected to adjust rates for a long time unless we get significant deviation from their inflation target. In fact, the vast majority of ECB members is comfortable with the current rate setting and will not respond to small or short-term deviations from their target barring a clear shock in the economy.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD couldn’t sustain the break below the key support zone around the 1.16 handle. The price rose back above the support zone and the buyers will now look to pile in for a rally back into the 1.18 handle. The sellers, on the other hand, will want to see the price breaking lower again to position for a drop into the 1.14 handle next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can that we some consolidation right above the key support zone. This is where we can expect the buyers to step in with a defined risk below the zone to position for a rally into the trendline. The sellers, on the other hand, will want to see the price breaking lower to pile in for a drop into the 1.14 handle next.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor upward trendline defining the current bullish momentum. The buyers will likely lean on the support zone and the trendline to keep pushing into new highs, while the sellers will look for a break lower to increase the bearish bets into new lows. The red lines define average daily range for today.
Upcoming Catalysts
This week is going to be very light again in terms of data releases given the US government shutdown. Data like Retail Sales and Jobless Claims won’t be released. We will have lots of Fed speakers though with Fed Chair Powell scheduled for tomorrow. Given the lack of key US data though, it’s very unlikely to see a change in stance. For now, we know that only the US CPI will be published despite the shutdown, which is scheduled for Friday October 24.
