EUR/USD pushes harder and maintains its course toward the key 1.1600 barrier on Tuesday, building on Monday’s slight advance and always underpinned by the increasing selling interest hurting the US Dollar (USD).
On the latter, discouraging prints from the weekly US ADP report, Retail Sales and the Consumer Confidence tracked by the Conference Board undermined the recent upside impulse in the US Dollar Index (DXY), motivating it to breach below the key 100.00 support and reach multi-day lows.
In addition, the Greenback’s sharp sell-off also breaks below the key 200-day SMA in the 99.80 region, exposing a deeper correction in the very near term, which appears reinforced by the widespread retracement in US Treasury yields across the curve.
Shutdown resolved… sort of
Washington has officially brought the 43-day shutdown to an end, though “resolved” might be stretching it. Lawmakers only agreed to fund the government until January 30, which means the next budget fight is already on the calendar.
This round also flipped the usual dynamics. Budget showdowns normally come from Republican resistance, but this time it was Democrats who pushed the confrontation to the brink. And while the political noise dominated, the underlying issue is still staring everyone in the face: the national debt is now hovering near $38 trillion and rising by almost $1.8 trillion every year.
Senate Democrats argued that the economic pain: Delayed benefits, missed paycheques, and disrupted services, was worth it if it forced a broader conversation about surging health insurance costs that are hitting around 24 million Americans. Republicans countered that the damage wasn’t justified, a stance that normally belongs to Democrats, not the GOP.
Back to Russia–Ukraine diplomacy
President Volodymyr Zelenskiy said on Tuesday that Ukraine is ready to move ahead with a US-backed framework to end the war with Russia and is open to ironing out the contentious points directly with President Trump. He stressed that key European allies should also be part of any talks.
Trump, in a separate White House appearance, said he thinks a deal is “getting close”, though he offered nothing in the way of specifics.
On this, Zelenskiy could travel to the US in the coming days to try to wrap up an agreement, although Washington hasn’t confirmed any travel plans yet.
Furthermore, Kyiv’s tone suggests the Trump administration’s fresh diplomatic push may finally be gaining some traction. But optimism is tempered by the obvious caveat: Russia has been clear it won’t back anything that strays too far from its own objectives.
Fed keeps the cautious tone
The Federal Reserve delivered exactly what markets were expecting at its October 29 meeting: a 25-basis-point cut and a restart of light Treasury buying to ease money-market strains.
The vote came in at 10–2, bringing the Fed Funds Target Range (FFTR) down to 3.75%–4.00%. Policymakers framed the move as risk management, not the start of an aggressive easing cycle.
Fed Chair Jerome Powell emphasised the wide range of opinions inside the Federal Open Market Committee (FOMC), warning markets not to treat a December cut as a done deal.
The Minutes reinforced that split. Officials agreed on the need for October’s cut, but several voiced concern that easing too quickly could slow progress toward the 2% inflation target.
Markets are still leaning dovish: About a 76% chance of another cut on December 10 and roughly 94 basis points of total easing priced in by end-2026.
ECB content to sit tight
Over in Europe, the European Central Bank (ECB) kept rates unchanged at 2.00% for a third meeting in a row. With both inflation and growth sitting close to target, and after 200 basis points of cuts earlier this year, officials see little reason to adjust policy further.
ECB President Christine Lagarde highlighted the slight easing of global risks thanks to the US–China truce and targeted US tariff rollbacks, but she also made clear that uncertainty remains high.
Markets now see more than a 97% chance the ECB holds steady next month, with fewer than 8 basis points of further cuts priced in through end-2026. In other words, investors think the ECB is done for now.
Tech corner
EUR/USD seems to have woken up, staging a meaningful rebound so far in the first half of the week. The extension and duration of this move, however, remain to be seen.
That said, the November high at 1.1656 (November 13) remains bolstered by the intermediate 55-day and 100-day SMAs. Once the pair clears this region, it could then attempt a visit to weekly peaks at 1.1668 (October 28) and 1.1728 (October 17), ahead of the October ceiling at 1.1778 (October 1).
In the opposite direction, the loss of the November base at 1.1468 (November 5) should expose a probable decline toward the key 200-day SMA at 1.1414, prior to the August floor at 1.1391 (August 1). Down from here emerges the weekly low at 1.1210 (May 29) seconded by the May valley at 1.1064 (May 12).
Furthermore, momentum indicators hint at some incipient bullish mood. On this, the Relative Strength Index (RSI) climbs beyond the 50 yardstick, while the Average Directional Index (ADX) around 14 is still indicative of a fragile trend.
Big picture: EUR/USD still taking its cues from the USD
EUR/USD has been grinding lower since its year-to-date highs above 1.1900 in September. With few meaningful Eurozone drivers in the near term, the pair is likely to keep taking its direction from the Greenback. Any shift in the Fed’s messaging, a stronger global risk backdrop, or renewed interest in Eurozone assets could help the Euro (EUR) mount a more convincing recovery.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
