- The euro is currently trading above 1.1720 as Democrats oppose the Republican bill, raising concerns about a potential US government shutdown.
- The inflation risks identified by Fed officials Musalem and Hammack suggest a cooling labor market might be underway.
- Though consumer sentiment in the eurozone is rising, it remains below average and is likely to restrain momentum, even with a declining US dollar.
The EUR/USD pair saw gains of over 0.20% on Monday, driven by worries about a possible government shutdown in the US. Eurozone sentiment data showed improvement, but it hasn’t been enough to boost the shared currency further. As of now, the pair is trading at 1.1726 after a low of 1.1701 earlier in the day.
The shared currency shows modest gains as political gridlock in Washington dampens sentiment
The US dollar has weakened compared to most G10 currencies, following a meeting between President Donald Trump and two Democratic leaders in Congress.
Senate Democratic leader Schumer remarked that significant differences remain, while House leader Jeffries expressed he would not support a partisan Republican bill that could jeopardize healthcare.
Meanwhile, Vice President Vance indicated that discussions with Democrats suggest a government shutdown could be on the horizon.
US housing data has shown past brightness, but comments from Federal Reserve officials have been mixed. St. Louis Fed President Musalem was somewhat hawkish, suggesting inflation expectations might be “a little high,” as he acknowledged a cooling labor market. In contrast, Fed official Hammack in Cleveland described inflation as excessively high and stated that the trend isn’t favorable.
New York Fed’s John Williams argued that the current policy is restrictive and is likely exerting downward pressure on inflation, although he noted the resilient labor market is gradually softening.
In Europe, consumer sentiment did see a slight improvement in the eurozone, yet it still falls below historical averages.
This week will see key reports including the ADP National Employment Change, ISM Manufacturing PMI, initial unemployment claims, and September non-farm payrolls.
Daily Market Movers: EUR/USD rises despite strong US housing data
- US home sales experienced a robust rebound in August, with a 4% month-over-month increase countering a prior contraction of -0.3%. This was better than the expected 0.3% rise after an upward revision for July.
- Fed fund futures show an 89% probability of a 25 basis point cut in October, as indicated by Prime Market Terminal’s rate probability tool. Conversely, the likelihood of a 50 basis point cut stands at 11%.
- In the eurozone, consumer confidence improved slightly in September from -15.5 to -14.9, while industrial confidence dipped slightly from -10.2 to -10.3, which was better than the forecast of -10.9. Service sentiment decreased from 3.8 to 3.6, missing the consensus of 3.7.
Technical Outlook: EUR/USD recovers and approaches 1.1740
The EUR/USD has seen a series of volatile days, but it is setting up to stabilize around the current level, which is near the 20-day simple moving average (SMA) of 1.1740.
If the pair breaks above 1.1740, the next resistance level will be 1.1800, heading toward the yearly peak of 1.1918. Conversely, a drop below 1.1700 could lead to further testing at 1.1650, with a potential challenge at the 100-day SMA around 1.1599.
