EUR/USD slid to 1.1378 on Thursday, pressing a two-month low as the US dollar hovered near a two-month high. The move followed firm US macro data that has raised inflation concerns and reinforced expectations of further Federal Reserve tightening. S&P Global said US private sector business activity grew at its fastest pace in more than five years in September, with services and manufacturing both improving while price pressures strengthened. Fed officials reiterated support for last week’s rate rise and flagged inflation risks, and markets lifted the implied chance of another hike in October to about 70% from 55% a day earlier. Oil has added to the inflation narrative, with uncertainty around US-Iran talks keeping prices elevated.
On the H4 chart, the pair completed a drop to 1.1369 before rebounding to 1.1392, leaving a consolidation band between those levels. A push towards 1.1396 is still in view, after which charts point to a dip towards 1.1360, with MACD remaining below zero and angled down. On the H1 chart, a fresh fall to 1.1369 was followed by consolidation above it, and Stochastic is above 50 and rising towards 80, consistent with a near-term corrective move towards 1.1396.
US Dollar Strength and Market Volatility Outlook
We are seeing the US dollar gain massive strength, pushing the EUR/USD down to a two-month low of 1.1378 as of late September 2026. This downward pressure is fueled by red-hot economic data, including the latest S&P Global US Composite PMI surging to a multi-year high of 54.6. With inflation risks rising, derivative traders must prepare for heightened volatility in the foreign exchange market over the coming weeks.
We recommend closely monitoring the federal funds rate expectations, as markets are now pricing in a 70% chance of an October rate hike. Elevated Brent crude prices, currently hovering near $85 a barrel due to ongoing Middle East tensions, are keeping global inflation fears alive. To hedge against this persistent hawkish outlook, we should focus on positioning for a stronger greenback.
Trading Opportunities and Monetary Policy Divergence
In the immediate term, we expect a brief corrective bounce toward the 1.1396 resistance level before the downtrend resumes. Derivative traders can capitalize on this by purchasing short-term EUR/USD put options near 1.1396 to target the next support level at 1.1360. This strategy allows us to limit our downside risk while capitalizing on the broader bearish momentum.
Historically, when the Fed aggressively signals tightening ahead of the final quarter, the US Dollar Index tends to rally by 2% to 3% in October. We should also watch the Eurozone’s sluggish economic indicators, such as Germany’s manufacturing PMI staying contractionary at 43.0, which further weakens the Euro. Exploiting this widening monetary policy divergence between the Federal Reserve and the European Central Bank remains our highest-conviction play.
