At a Glance
- EUR/USD saw a modest increase on Wednesday, moving towards 1.1610 after touching one-week lows below 1.1600.
- The US Dollar weakened due to a pause in gold’s sell-off and the ongoing US government shutdown lack of resolution.
- With limited Eurozone and US data, market focus is on speeches from ECB and Federal Reserve officials for monetary policy cues.
- Anticipation of Federal Reserve monetary easing is influencing market sentiment, with forecasts for upcoming rate cuts.
- Technically, EUR/USD found support at 1.1600, but the overall trend remains bearish, with resistance at 1.1730 and 1.1775.
USD Weakens Amidst Shutdown and Easing Expectations
The EUR/USD currency pair registered slight gains on Wednesday, breaking a three-day decline and trading near the 1.1610 level. Earlier in the session, the pair had fallen to one-week lows just under 1.1600. The US Dollar experienced a softening trend, partly attributed to a halt in the sharp sell-off of gold prices and the continuing US government shutdown, which shows no immediate prospect of an end.
US political developments continue to be a significant driver, with President Donald Trump reportedly rebuffing meeting requests from Democratic lawmakers, linking any engagement to the reopening of the government. This shutdown has now extended into its fourth week, signifying a prolonged period of federal government inactivity without a clear path to a funding resolution in the Senate.
In the absence of key macroeconomic data from both the Eurozone and the United States, market participants are directing their attention towards speeches from European Central Bank (ECB) officials, including President Christine Lagarde and Vice President Luis de Guindos, as well as comments from Federal Reserve officials. However, these statements are not widely expected to introduce substantial new insights into the immediate monetary policy direction of either central bank.
Daily Market Digest: Fed Easing Hopes Shape USD Outlook
The momentum of the US Dollar has diminished as market attention shifts from trade war developments to the prolonged US government shutdown and the persistent expectations of interest rate cuts by the Federal Reserve. A recent Reuters survey indicated that a majority of analysts anticipate a 25 basis point rate cut from the Fed at its upcoming meeting, with potential for another cut in December. Concerns are surfacing among economists that the central bank might lean towards excessive monetary easing.
President Trump’s assertion that Republicans will not be influenced by Democrats suggests the current government closure could become one of the longest on record. Such an extended shutdown poses a risk to US GDP growth and could erode investor confidence in the US Dollar.
Earlier in the week, President Trump announced a meeting with Chinese President Xi Jinping, expressing optimism about reaching a trade deal. These comments temporarily eased fears surrounding the US-China trade war, contributing to a noticeable sell-off in precious metals.
Technical Analysis: EUR/USD Finds a Floor Near 1.1600
Short-Term Perspective
The EUR/USD currency pair has established a support zone around the 1.1600 mark. Despite this consolidation, the broader trend continues to exhibit bearish characteristics, following a notable rejection at the 1.1730 resistance level last week. Current technical indicators suggest underlying weakness, with the 4-hour Relative Strength Index (RSI) trading below 40, highlighting the fragile nature of any upward price movements.
Potential Upside Targets
Any upward movements are currently constrained, trading significantly below Tuesday’s highs, in the vicinity of 1.1650. A decisive break above this level would be necessary to shift market focus towards the October 17 high of 1.1728. Further bullish momentum could then target the October 1 high, approaching the 1.1775 level.
Downside Risks to Consider
Conversely, a confirmed break below the intra-day low of 1.1598 could signal further downside potential. This scenario might lead the pair towards the October 9 and 14 lows, which are situated around 1.1545, before potentially reaching the channel’s bottom, currently located near 1.1460.
Summary of Expert Insights
The EUR/USD pair experienced a modest recovery on Wednesday, supported by a pullback in the US Dollar amid ongoing government shutdown concerns and increasing expectations of Federal Reserve rate cuts. While technical analysis points to support at the 1.1600 level, the overall trend remains cautious, with traders closely monitoring political developments and central bank commentary for future direction.