During Us Session

The Euro remains near recent highs after rebounding from two-month lows at 1.1542. This follows Fed Chair Powell’s indication of potential rate cuts, weakening the US Dollar.

In August, Eurozone Industrial Production fell by 1.2%, a less than anticipated decline. Meanwhile, Powell’s statements emphasised US labour market concerns, suggesting further rate cuts in October.

During the US session, focus points include the New York Empire State Manufacturing Index and speeches from key Fed figures. ECB Vice President Luis de Guindos will also speak in Madrid.

The Euro rose against the US Dollar, strengthening by 0.15%, while other currencies like the GBP and JPY fell. A dovish Fed stance brightened market sentiment, even amid ongoing US-China trade tensions.

Technically, the EUR/USD faces resistance, having failed to break support at 1.1542 again. With momentum improving, challenges include the neckline at 1.1630 and the descending channel top at 1.1675.

Future speeches from Fed officials like Miran, Waller, and Schmid will continue to influence markets. Their next addresses are slated for 2025, reflecting ongoing Fed strategies and economic policies.

Federal Reserve Signaling

With the Federal Reserve signaling more rate cuts, the US Dollar is losing its strength. This creates a clear tailwind for the Euro, which is holding firm near its recent highs around 1.1650. We see this divergence between the Fed and other central banks as the main driver for currency markets in the coming weeks.

The Fed’s concern over the American labor market appears justified, adding credibility to its dovish stance. The latest non-farm payrolls report from September 2025 showed that job creation slowed significantly to just 98,000, missing analyst expectations. This weak data almost guarantees the 25-basis-point rate cut that markets are now fully pricing in for the end of October.

For derivative traders, this environment suggests that betting on a higher EUR/USD is the prevailing strategy. The rise in one-month implied volatility for the pair to 8.2% indicates that the market is preparing for bigger moves. This makes buying call options or constructing bull call spreads on the Euro an attractive way to gain upside exposure while managing risk.

We are watching the 1.1675 level, which lines up with the top of a descending channel, as the next key target. The recent double bottom formation at 1.1542 gives us a solid support level to trade against. A sustained break above resistance would signal that the Euro’s recovery has further to run.

This setup is reminiscent of the market action we saw in late 2023, when the US Dollar Index (DXY) fell from over 106 to below 102 as markets began anticipating a Fed pivot away from rate hikes. Historically, the initial phase of a Fed easing cycle has been negative for the dollar. We believe this pattern is repeating itself now.

Furthermore, the European Central Bank is not facing the same pressure to cut rates, which should continue to support the Euro. Eurozone core inflation has remained stubbornly above the 2% target, holding at 2.4% in the latest September 2025 reading. This policy divergence between a dovish Fed and a more patient ECB strengthens the case for a higher EUR/USD exchange rate.

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