The EUR/USD pair saw a bit of a rebound on Tuesday, influenced by Fed Chair Jerome Powell’s dovish comments and the French government’s decision to halt pension reform discussions. It is currently trading up by 0.32%, now at 1.1606.
Euro rises as Fed chair raises concerns and France halts pension overhaul
The euro’s uptick can be largely attributed to Powell’s cautiously dovish tone, noting that the economy is moving toward lower employment and fewer layoffs, though he did point out increasing risks for the labor market in light of inflation. He mentioned that the economy is performing better than anticipated and highlighted that the central bank is evaluating situations on a case-by-case basis.
In contrast, Boston Fed’s Susan Collins expressed a more hawkish stance, emphasizing that inflation remains a key focus and stating that even with potential easing, policies would continue to be “mildly restrictive.”
Heightened tensions between the U.S. and China also sparked a dip in the dollar following tough comments from U.S. President Donald Trump towards Beijing, prompting Chinese officials to introduce port fees on U.S. vessels.
On the data front, U.S. reports indicate that business confidence is weakening. Meanwhile, robust German inflation figures and a decline in the eurozone’s ZEW expectations survey put some downward pressure on the euro, but it managed to recover later in the day.
Additionally, European Central Bank President Christine Lagarde reassured that the monetary policy is stable, while Villeroy suggested that the bank’s next move is more likely to be a rate cut than an increase.
Current market trends: Euro gains strength as USD loses ground
- Powell indicated that the outlook for employment and inflation “hasn’t changed much” since the last meeting in September, remarking that recent data might show stronger economic activity than expected. However, he noted that risks for the labor market are also increasing amidst inflationary concerns.
- He pointed to rising inflation primarily due to higher commodity prices, emphasizing that this rise is more about tariffs than broad inflation patterns.
- Collins remarked that inflation might start to decline as the effects of tariffs diminish. He did acknowledge rising risks to the labor market but mentioned that positive financial conditions would help household finances.
- An update on consumer price inflation is scheduled for October 24th, with the Bureau of Labor Statistics set to release the latest Consumer Price Index (CPI) report amid the ongoing government shutdown.
- The U.S. dollar index (DXY), which measures the dollar against six currencies, fell by 0.25% to 99.00.
- Last month’s NFIB Business Optimism Index dropped by 2.0 points to 98.8, marking the first decline in three months. The NFIB’s Uncertainty Index rose by seven points from August to 100, representing one of the highest readings in the past 51 years.
- Money markets are fully anticipating a 25 basis point rate cut at the Fed’s upcoming meeting on October 29th, estimating a 97% probability of it occurring.
- Germany’s ZEW reported economic sentiment at a lower-than-expected 39.3, falling short of the 41 forecast but still above the previous reading of 37.3. The current situation surprisingly worsened to -80.0, compared to last month’s -76.4, defying predictions of an improvement to -74.8. ZEW President commented, “We still hold hopes for a medium-term recovery.”
Technical outlook: EUR/USD rebounds to 1.1600, yet maintains a bearish sentiment
Even as the technical outlook for EUR/USD saw some improvement on Tuesday, it remains below the 100-day simple moving average (SMA) at 1.1641, indicating a neutral to bearish bias. The Relative Strength Index (RSI) also dipped below the neutral 50 mark last Friday, suggesting growing downside momentum.
Key support levels are identified at 1.1600, then 1.1550, and finally 1.1500. If they break through, the cycle low from August 1st stands around 1.1391. On the flip side, significant resistance levels are at 1.1650 and 1.1700. A decisive move above 1.1700 might open doors to test the 1.1800 level and possibly the July 1st high of 1.1830.
