EUR/USD Trends Amidst Trade Tensions

The EUR/USD pair experienced a decline at the start of European trading on Thursday, dropping below 1.1600 from the previous day’s peak of 1.1620. This shift can be attributed to renewed trade tensions between the United States and China, which have given a boost to the safe-haven dollar. However, market volatility seems relatively calm as traders prepare for the upcoming U.S. consumer price index (CPI) data set to be released on Friday.

Ongoing trade disputes are crucially influencing the market, especially with the government shutdown in the U.S. and the lack of major macroeconomic data. Recently, news of the U.S. contemplating restrictions on software exports to China has intensified these trade tensions between the two leading economies.

Despite this, the market’s reaction has been somewhat muted. Investors appear optimistic that a future meeting between President Donald Trump and Chinese President Xi Jinping will extend the current trade ceasefire, hopefully avoiding the potential escalation of these threats.

On Thursday’s economic agenda, key events include a speech from European Central Bank (ECB) Commissioner Philip Lane and the release of the Eurozone Consumer Confidence Index. In the U.S., data from the Chicago and Kansas Federal Reserve’s National Activity Indices, along with addresses from Fed Governors Michelle Bowman and Michael Barr, are expected to provide insights into the U.S. dollar’s trajectory.

Market Highlights: Trade Restrictions Impact on USD

• The U.S. dollar strength increased on Wednesday after hints of potential restrictions on various software products in response to China’s rare earth export limitations.
• Treasury Secretary Scott Bessent attempted to reassure the market, stating that U.S. negotiators were approaching talks with the Chinese with “goodwill” and respect.
• President Trump further alleviated market concerns by downplaying the significance of China’s restrictions and expressing confidence in reaching agreements with Xi Jinping on diverse issues, including soybean trade and nuclear policy.
• In Europe, ECB Vice President Luis Deguindos affirmed that inflation risks are balanced, emphasizing positive trends in consumer prices and confirming that current interest rates are suitable.
• Looking ahead, the delayed publication of the U.S. CPI report for September, now scheduled for Friday, remains a key focus. Expectations indicate a rise in consumer inflation from 2.9% in August to 3.1%, while core inflation is predicted to hold steady at 3.1%. Yet, these figures may not alter expectations for an interest rate cut by the Federal Reserve in October.

Technical Analysis: EUR/USD Maintains Bearish Trend

The EUR/USD pair continues in a bearish trend, yet it is attempting to ascend while encountering selling pressure. The previous ceiling was at 1.1620, with current trading above the support level near Wednesday’s low at 1.1580. The Relative Strength Index (RSI) remains under 50, indicating negative momentum, and the Moving Average Convergence Divergence (MACD) is still below the signal line.

If it drops below 1.1580, attention will shift to the lows of October 9th and 14th around 1.1545. Further down, there’s potential for targeting the channel’s bottom near 1.1455. Conversely, on the upside, resistance levels at Wednesday’s high of 1.1620 and near 1.1625 could challenge buyers, with additional resistance at the October 21 high around 1.1650 and the October 17 high at 1.1728.