EUR/USD loses the grip and retreats for the third consecutive day on Tuesday, slipping back to the 1.1570 region, or four-day troughs.
The increasing selling pressure on spot comes in response to the better tone in the US Dollar (USD) amid the widespread sentiment toward the risk aversion, which prompts the US Dollar Index (DXY) to advance past the 99.60 level, or three-day highs, and drags US Treasury yields lower across the curve.
The exacerbated prudence among market participants comes ahead of the publication of a backlog of US data releases later this week, including the critical Nonfarm Payrolls for the month of September (Thursday).
Shutdown ends… but only for now
Washington finally brought the 43-day shutdown to a close, though calling it a “solution” might be a stretch. Congress only funded the government through January 30, so the clock is already ticking toward another potential standoff.
This episode flipped the usual script: it’s normally Republicans who spark these budget clashes, yet this time Democrats drove the confrontation. And what barely got mentioned? The $38 trillion national debt, which is still climbing at roughly $1.8 trillion a year.
Senate Democrats argued the economic hit, delayed benefits, missed paycheques and frozen services were worth it if it pushed the country to confront rising health insurance costs affecting around 24 million Americans. Republicans, interestingly, took the line usually heard from Democrats: that the economic fallout wasn’t worth the brinkmanship.
The shutdown also froze the flow of economic data, leaving the Federal Reserve (Fed) and markets navigating without their usual indicators on the state of the US economy.
A pause in the US–China friction
After months of back-and-forth escalation, Presidents Donald Trump and Xi Jinping finally met in South Korea in late October, and markets welcomed the breather. The two agreed to extend the current truce in the US–China trade war. It’s not a breakthrough, but at least it stops things from getting worse for now.
After the meeting, Trump said the US would roll back some tariffs, while China agreed to resume soybean purchases, maintain rare-earth exports, and tighten cooperation with the US on fentanyl controls.
Beijing later confirmed the ceasefire would be extended for another year. It’s hardly transformational, but it shows both sides prefer talking over re-escalating, at least at this stage.
The Fed keeps its steady, cautious tone
The Fed delivered a predictable outcome at its October 29 gathering, cutting interest rates by 25 basis points and restarting small-scale Treasury purchases to ease money-market strains.
The vote came in at 10–2, pulling the target range down to 3.75%–4.00%, exactly what markets anticipated. Officials framed the move as precautionary, not the start of a deeper easing cycle.
Fed Chair Jerome Powell stressed the wide range of views inside the Federal Open Market Committee (FOMC) and cautioned markets not to assume a December cut is locked in.
For now, markets are pricing roughly 11 basis points more easing by year-end and just over 83 basis points by end-2026. However, these expectations could shift once the government fully reopens and markets get delayed data releases on jobs, inflation and broader activity.
ECB: Happily on the sidelines
Across the Atlantic, the European Central Bank (ECB) kept rates unchanged at 2.00% for a third straight meeting. With growth and inflation both hovering close to target, and after 200 basis points of cuts earlier this year, policymakers see little reason to adjust policy again.
ECB President Christine Lagarde noted that global risks have softened somewhat thanks to the US–China truce and partial US tariff rollbacks, but she also emphasised that uncertainty remains high.
Market pricing now implies nearly 6 basis points of additional easing by end-2026, essentially signalling that traders think the ECB is basically done.
Tech corner
So far, further upside impulse in EUR/USD should meet a decent barrier at the current monthly peaks in the mid-1.1600s, where the transitory 55-day and 100-day SMAs also sit.
Beyond that region, the pair could attempt a move to the weekly highs at 1.1668 (October 28) and 1.1728 (October 17), prior to the October top at 1.1778 (October 1). Extra gains could expose the 2025 ceiling of 1.1918 (September 17), followed by the key 1.2000 yardstick.
The resurgence of the downward bias should find immediate contention at the November base at 1.1468 (November 5), ahead of the August floor at 1.1391 (August 1), which appears reinforced by the significant 200-day SMA (1.1387). South from here, the next support sits at the weekly trough at 1.1210 (May 29) and then the May valley at 1.1064 (May 12).
Additionally, momentum indicators seem to favour further range-bound trade: The Relative Strength Index (RSI) approaches the 50 threshold, while the Average Directional Index (ADX) below 15 points to a trend that lacks vigour for now.
Big picture
EUR/USD is still stuck in a familiar range, waiting for something strong enough to nudge it out of its holding pattern. A shift in the Fed’s tone, a broader pickup in risk appetite, or firmer demand for Eurozone assets relative to US ones could all provide that spark. For now, though, the buck remains the main driver.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the 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.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
