EUR/USD pulls back as investors await US consumer sentiment information

The EUR/USD pair is showing signs of a slowdown as the US trading session approaches on Friday. Currently, it is hovering just above the 1.1560 mark, having pulled back from earlier highs of about 1.1590. This week, the currency has seen a decline of more than 1.4%, with markets focusing on the Michigan Consumer Confidence Index, which is anticipated to drop further, making this the weakest performance of the year.

In France, the recent resignation of Prime Minister Sébastien Lecornu has created political turbulence, affecting the euro. Now, traders are awaiting President Emmanuel Macron’s decision on a new prime minister. This leader, like the last five, will need to navigate an austerity budget while dealing with strong opposition in parliament.

On the other side, the US dollar is gaining strength, driven by worries regarding France and similar issues in Japan. The new leader of Japan’s Liberal Democratic Party, Sanae Takaichi, favors stimulus actions and is likely to become the next prime minister. Dovish statements from Fed officials haven’t undermined the dollar’s ascent, especially as the government shutdown has delayed many US economic reports.

Daily digest of market moves: USD reigns amid political uncertainty

• The US dollar has outperformed other currencies this week. The USD index (DXY), which tracks the dollar’s value against six major currencies, has risen by nearly 1.7% so far this week, indicating it might achieve its best weekly performance this year. Heightened safety concerns stemming from political deadlocks in France and speculation about Japan’s new leadership have spurred demand for the dollar.
• President Macron is expected to appoint a sixth prime minister within the next day to fend off calls for new parliamentary elections. However, there’s skepticism about whether he can secure approval for a new budget given the division within Congress.
• The latest European Central Bank meeting revealed increasing unease about the global economic situation, yet policymakers don’t feel pressured to alter their current approach. There are mixed views on inflation among committee members, with some concerned about rising risks while others note a weakening of price pressures. This nuance has had only a slight effect on the euro.
• Mary Daly, the president of the San Francisco Fed, has suggested the need for additional interest rate cuts in the upcoming months, citing alarming trends in the US labor market.
• Later on Friday, the preliminary figures for the Michigan Consumer Confidence Index will be released, marking one of the few data points available during the government shutdown. The index is projected to show consumer confidence declining for the third consecutive month, from 55.1 in September to 54.2 in October.

Technical analysis: EUR/USD Still vulnerable below 1.1600

The EUR/USD broke through the crucial support level at 1.1600 on Thursday and has dropped to a two-month low, indicating significant bearish momentum. Technical indicators suggest a further decline, with the Relative Strength Index (RSI) on the 4-hour chart lower but not yet in the oversold range. As things stand, it seems likely that any rally could attract more sellers.

On the upside, the pair might face resistance around the previous support level of 1.1575, which was the low on August 27, followed by just above 1.1600 from Wednesday. Further ahead, attention will shift to the September 25th low near 1.1650 and the high recorded on October 9th.

From the 4-hour chart since mid-September, immediate support is situated at the base of the descending channel and close to Thursday’s low at 1.1540. If the pair continues to drop, the August 5th low near 1.1525 will be the next support area to watch, followed by the low of August 1 at 1.1395.

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