Insights 
VT 
The EUR/USD has dipped to one-week lows, currently trading at 1.1586. This follows a resurgence in the US Dollar amid cautious market sentiment due to upcoming speeches by ECB and Fed officials. The US government’s ongoing shutdown, now in its fourth week, adds to market tension as President Trump refuses to engage with Democratic lawmakers until the government reopens.
With a lack of key economic releases from the Eurozone and the US, traders are focused on speeches from ECB’s Lagarde and de Guindos, as well as Fed officials. The speeches are unlikely to reveal new details on monetary policies. The EUR showed strength against the GBP, but its movements against other major currencies varied.
Market Sentiment Drivers
Market sentiment is influenced by potential Fed easing, the US-China trade situation, and the government shutdown. Analysts anticipate a 25-basis-point rate cut by the Fed in late October. The ECB is likely to keep rates unchanged in its upcoming meeting, expecting to maintain a 2% steady rate through 2026. Trump’s stance on the shutdown and optimism about US-China trade talks also impact the market.
Technical analysis indicates a bearish trend for the EUR/USD. The pair has slipped below the 1.1600 support level, with resistance encountered last week at 1.1730. Possible retesting of recent lows around 1.1545 is anticipated, while a break above 1.1650 is required for upward movement.
As of October 22, 2025, we are seeing the EUR/USD pair test key support levels around 1.0750, a dynamic driven by familiar forces. This environment echoes past periods where uncertainty over central bank policy created significant dollar strength. The market is once again highly sensitive to any hint of policy divergence between the Federal Reserve and the European Central Bank.
Potential Federal Reserve Actions
While the Federal Reserve is currently holding rates steady, futures markets are now pricing in a 65% probability of a rate cut by March 2026. The recent US inflation data, which showed a cooling to 2.8% year-over-year in September 2025, is fueling this speculation for monetary easing. This is very similar to the sentiment we saw years ago when analysts anticipated rate cuts amid political turmoil.
Across the Atlantic, the European Central Bank appears more constrained, with the latest Eurozone manufacturing PMI registering at 48.5, marking the third consecutive month of contraction. This weak economic data suggests the ECB will likely maintain its current policy for the foreseeable future, making the euro less attractive. This policy gap is a key reason for the dollar’s relative strength.
Adding to the market’s cautious mood are the ongoing budget negotiations in Washington, which are creating political headwinds. Just as the prolonged government shutdown we saw back in 2019 impacted investor confidence, this current uncertainty is causing traders to seek safety in the dollar. The CBOE Volatility Index (VIX) reflects this anxiety, having crept up to 19.5 in recent sessions.
Given this backdrop, we believe traders should consider strategies that benefit from further downside or limited upside in EUR/USD. Buying put options on the euro or establishing put spreads can offer a defined-risk way to position for a potential break below the 1.0700 level. These bearish technicals are reminiscent of the breakdown below 1.1600 that occurred under similar macroeconomic pressures in the past.
