EUR/USD clinches its second consecutive day of losses on Monday, now breaking below the key 1.1600 support to challenge three-day troughs near 1.1580.
The pair’s rejection from the 1.1650 region comes on the back of fresh demand for the US Dollar (USD), which in turn underpins the move higher in the US Dollar Index (DXY) to the 99.50 zone amid the mixed performance in US Treasury yields across various maturity periods.
Meanwhile, optimism following last week’s agreement to end the historic US federal government shutdown appears to be fizzling out, giving way to a more cautious stance ahead of the release of a backlog of US data releases later in the week, including the always-relevant Nonfarm Payrolls for the month of September.
The shutdown drama ends… sort of
Washington finally managed to end the 43-day shutdown, but calling it a victory for anyone would be generous. Congress only funded the government through January 30, so the worry is already creeping back that we’ll be right here again in a few weeks.
This episode put Democrats in an unusual spot, since it’s typically Republicans who trigger these budget fights. What also stood out was what barely got a mention: The $38 trillion national debt, still rising at roughly $1.8 trillion a year.
Senate Democrats argued the economic hit, delays in benefits, federal workers missing paycheques, frozen services, was worth it if it forced attention on rising health-insurance costs for around 24 million Americans. Republicans, interestingly enough, made the argument normally heard from Democrats: That the economic fallout just wasn’t worth the showdown.
The shutdown also halted the release of economic data, leaving the Federal Reserve (Fed) and markets flying a bit blind on the true state of the US economy.
A rare breather in the US–China relationship
After months of tit-for-tat moves, Presidents Donald Trump and Xi Jinping finally met in South Korea in late October, giving markets a much-needed breather. The two agreed to extend the existing truce in the US–China trade war: Not a breakthrough, but at least a pause in new escalation.
Following the meeting, Trump said the US would roll back some tariffs, while China agreed to resume soybean imports, keep rare-earth exports flowing, and coordinate more closely with the US on fentanyl controls.
Beijing later confirmed that both sides agreed to extend the ceasefire for another year. It’s not transformational, but it does show both countries prefer talking to ramping things up again, for now, at least.
The Fed sticks to its careful balancing act
The Fed kept things measured at its October 29 gathering, cutting rates by 25 basis points and restarting small-scale Treasury purchases to ease money-market stresses.
The decision passed 10–2, bringing the target range to 3.75%–4.00%, exactly as anticipated. Officials described the move as precautionary rather than the start of a more aggressive easing cycle.
Fed Chair Jerome Powell highlighted the wide range of views inside the Federal Open Market Committee (FOMC) and warned against assuming another cut is coming in December.
Markets are currently pricing in just around 9 basis points of further easing by year-end and roughly 80 basis points by end-2026. Those expectations could shift once the government reopens and the backlog of delayed releases, including the all-important Nonfarm Payrolls report, finally lands.
ECB: Comfortable on the sidelines
Over in Europe, the European Central Bank (ECB) kept rates steady at 2.00% for a third consecutive meeting. With growth and inflation hovering near target — and after 200 basis points of cuts earlier in the year — policymakers see little need to adjust policy again.
ECB President Christine Lagarde noted that global risks have eased a touch thanks to the US–China truce and the partial rollback of US tariffs, but she also stressed that uncertainty remains high.
Markets now pencil in nearly 2 basis points of additional easing by end-2026, essentially signalling that traders think the ECB is pretty much done cutting.
Tech corner
EUR/USD’s recovery from November lows seems to have met a tough resistance around 1.1650, a region also reinforced by the provisional 55-day and 100-day SMAs.
If the pair manages to clear that region, it could then set sail to a potential visit to the weekly tops at 1.1668 (October 28) and 1.1728 (October 17), all before the October ceiling at 1.1778 (October 1). North from here emerges the 2025 ceiling of 1.1918 (September 17), ahead of the key 1.2000 threshold.
In case bears regain the upper hand, the November floor at 1.1468 (November 5) is expected to turn up as an initial support, seconded by the August trough at 1.1391 (August 1). A move lower could expose for a slide toward the key 200-day SMA at 1.1381, prior to the weekly low at 1.1210 (May 29) and the May base at 1.1064 (May 12).
Furthermore, momentum indicators show that the upside impulse might be losing some traction: The Relative Strength Index (RSI) breaches below 49, suggesting further downside could lie ahead, while the Average Directional Index (ADX) around 15 signals a still pale trend.
The bigger picture
EUR/USD is still stuck in its rangebound theme, waiting for something strong enough to spark a meaningful change of direction: A shift in the Fed’s message, a broader appetite for risk, or firmer demand for Eurozone assets vs. US ones could all help tip the balance. For now, though, it’s still the Dollar’s swings setting the pace.
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.
