The Euro maintains its position above 1.1720 due to fears of a US government shutdown following Democratic rejection of a Republican bill. The EUR/USD pair shows a 0.20% gain amid these uncertainties, currently trading at 1.1726.
Political gridlock in Washington is causing a decline in the US Dollar as leaders of both parties meet with the President. The Vice President warns of a potential shutdown, and mixed signals come from Federal Reserve officials regarding inflation and the labour market.
Eurozone Consumer Sentiment
In the Eurozone, Consumer Sentiment has improved but remains under the historical average. Important upcoming data includes ADP National Employment Change, ISM Manufacturing PMI, Initial Jobless Claims, and Nonfarm Payrolls.
Despite strong US housing data, the EUR/USD continues to rise. US Pending Home Sales saw a 4% increase in August. The market anticipates a 25-basis-point cut by the Federal Reserve, with only an 11% chance of a larger cut.
EUR/USD has risen over recent days and could consolidate near the 20-day Simple Moving Average. If it surpasses 1.1740, resistance could rise to 1.1800, with a potential drop below 1.1700 exposing levels like 1.1650.
The current political gridlock in Washington is the main driver pushing the EUR/USD pair higher, with the US Dollar weakening on fears of a government shutdown. We see the Euro holding above 1.1720 primarily due to this uncertainty, not because of its own fundamental strength. This situation presents a short-term trading opportunity based on US political news rather than economic data.
Impact of Government Shutdowns
Historically, government shutdowns have created temporary but significant volatility for the Dollar. Looking back at the extended shutdown we saw in late 2018 and early 2019, the Dollar Index (DXY) initially dipped before recovering as the market refocused on fundamentals. With today’s date being September 30, 2025, the deadline is imminent, meaning we should be positioned for sharp price swings in either direction depending on news out of Washington.
The mixed messages from the Federal Reserve are adding to the market’s confusion, but the upcoming Nonfarm Payrolls report will be critical. Recent data we’ve seen this quarter shows the US unemployment rate has edged up to 4.1%, suggesting the labor market is finally cooling as Fed officials have noted. A weaker-than-expected jobs number would almost certainly cement expectations for an October rate cut and could send EUR/USD through the 1.1800 resistance level.
On the other side of the pair, we remain cautious about the Euro’s own prospects, as European economic sentiment remains below its long-term average. Recent Eurozone manufacturing PMI data for August came in at 47.3, still firmly in contraction territory, which limits the Euro’s upside potential. Any sign of a quick resolution to the US shutdown could easily reverse the pair’s recent gains.
Given the consolidation around the 1.1740 level, we are looking for a catalyst to trigger a breakout. Derivative traders might consider buying call options with a strike price above 1.1800 to capitalize on a potential Dollar sell-off from a weak jobs report or a prolonged shutdown. Conversely, put options below 1.1700 could be a hedge against a surprise political agreement that would strengthen the Dollar and push the pair toward the 1.1600 support.
