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VT 
The EUR/USD pair saw a recovery, climbing above 1.1600 due to a plunge in the US Dollar amid growing trade tensions between the US and China. This move followed four days of declines for the Euro and came despite political uncertainties in France and weak Eurozone economic data.
French President Emmanuel Macron reappointed Sébastien Lecornu as Prime Minister, ending recent political chaos. Macron vowed to address France’s budget issues and general instability, which had affected confidence in the Euro.
Us Dollar Weakens Amid Trade Tensions
The US Dollar weakened after renewed threats from Trump concerning tariffs on China. Meanwhile, consumer sentiment in the US remained steady, with inflation expectations showing slight changes. The US Dollar Index dropped by 0.52% to 98.87.
EUR/USD was impacted by the Federal Reserve’s stance, with markets anticipating a 25-basis-point rate cut. The pair’s technical indicators show immediate support at 1.1550 and potential resistance at 1.1650.
The Euro is influenced by factors like inflation data, economic performance, and trade balance. High inflation often leads to adjustments in interest rates by the ECB, while strong economic indicators and a positive trade balance typically boost the Euro’s value.
Christian Borjon Valencia, a retail trader since 2010, specialises in technical analysis.
Given the sharp selloff in the US Dollar, we see an opportunity in the coming weeks centered on continued dollar weakness. The renewed threat of massive tariffs against China is a significant driver, creating uncertainty around the US economic outlook. This environment suggests that positions benefiting from a falling dollar, like long EUR/USD positions, are becoming more attractive.
The market has almost completely priced in a Federal Reserve rate cut for the October 29th meeting, with odds sitting at 94%. This expectation is the primary force weighing on the dollar, a trend we’ve seen build over the last few weeks. As derivative traders, this means we should be prepared for volatility around the announcement, but the path of least resistance for the dollar appears to be downwards leading into the meeting.
Impact Of Government Shutdown
Adding to the dollar’s woes is the ongoing US government shutdown, which historical data shows can directly impact economic growth. We saw this back in the 2018-2019 shutdown, which the Congressional Budget Office estimated trimmed GDP by about 0.2% in the first quarter of 2019. Any similar drag on the economy today only strengthens the case for the Fed to cut rates, further pressuring the dollar.
On the Euro side, caution is warranted as gains seem limited by underlying weakness within the Eurozone. The recent political relief in France is positive, but it doesn’t erase the fundamental challenges facing the bloc’s economy. Recent data showed German manufacturing PMI, a key indicator for the region, fell to 48.5, signaling a contraction that will likely keep the European Central Bank from pursuing any aggressive policy.
This mixed picture suggests that while being long EUR/USD is the straightforward trade, using options could be a more prudent approach to manage risk. For instance, buying EUR/USD call options allows us to capitalize on potential upside while limiting our downside risk if Eurozone data worsens unexpectedly. This strategy seems especially relevant as the pair struggles to break and hold key resistance levels.
From a technical standpoint, the EUR/USD is attempting to stabilize after falling below its 100-day moving average. The fading selling pressure, indicated by the RSI moving towards neutral, supports the idea that the pair may consolidate or drift higher. We are watching the 1.1650 level as the first major resistance, and a break above it could open the door for a move toward 1.1700 ahead of the Fed’s decision.
