The EURUSD pair did not rally despite the US-EU trade deal, potentially due to market anticipation of the tariff rate. While the USD gained some ground recently, it lacked a notable catalyst. The market continues to range as traders await new developments for a sustained trend. The “short US dollar” remains a popular trade, requiring a meaningful catalyst to alter rate cut expectations.<\/p>\n
The US-EU trade deal has reduced uncertainty on the EUR side. Several ECB members have adopted a neutral stance on further rate cuts, requiring negative data to consider more reductions. Despite market pricing around a 65% probability of a December cut, the ECB may hold rates given the trade deal, easing measures, and fiscal plans.<\/p>\n
In technical analysis, the daily chart indicates key support at 1.1575, with potential for both buyers and sellers to impact price movements. The 4-hour chart shows a breach of minor support at 1.1720, suggesting a bearish sentiment due to expected trade details. The 1-hour chart offers limited new insights, focusing on resistance and support testing.<\/p>\n
Upcoming US economic data, including job openings, consumer confidence, GDP, and employment figures, may serve as catalysts for market movement in the near future.<\/p>\n
We believe the market is digesting the trade deal news, which was largely anticipated. With speculative net short positions against the dollar recently near multi-year highs according to CFTC data, the path of least resistance could be a further USD rally. A short squeeze could amplify any upward moves in the greenback.<\/p>\n
On the other side of the pair, European officials are signaling a pause. Recent commentary from central bank members has emphasized that core inflation remains stubbornly above 5%, pushing back on market expectations for a near-term rate cut. The probability of a December cut has now fallen below 50% in the overnight index swap market, suggesting traders are repricing the bank’s intentions.<\/p>\n
For derivative traders with a bearish view, the former support level around 1.1720 now presents a prime opportunity. We would consider buying put options or establishing short positions if the price retests this area from below. This provides a clear area to define risk, targeting the key support mentioned near 1.1575.<\/p>\n
Conversely, patient buyers should watch the 1.1575 level closely for signs of a bottom. Should the price fall to this significant support zone, we would look for bullish reversal patterns before purchasing call options. This strategy avoids trying to catch a falling knife and positions for a potential rally back towards the cycle highs.<\/p>\n
The upcoming week is packed with high-impact US data that will likely decide the next move. We are watching for Wednesday’s FOMC decision and Friday’s Non-Farm Payrolls report, with consensus estimates currently around 170,000 jobs. A strong set of numbers would bolster the dollar and likely push the pair towards the lower support, while weak data could challenge the bearish momentum.<\/p>\n
Historically, when positioning becomes as one-sided as the current anti-dollar trade, even neutral data can trigger sharp reversals. We saw a similar dynamic in late 2021 when crowded short positions were forced to unwind, leading to a multi-month dollar rally. Therefore, traders should remain nimble, as the catalyst for a move might not be obvious.<\/p>\n
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