Following a surprisingly strong rebound in German business confidence reported on Monday, the EUR/USD currency pair recovered slightly from a session low of 1.1620, climbing back above 1.1640. Still, it remains within its recent trading range as market participants await updates on U.S.-China trade negotiations and upcoming monetary policy decisions from the Federal Reserve and the European Central Bank later this week.
Encouraging remarks from U.S. and Chinese negotiators during their recent meetings in Malaysia suggest a potential trade deal, possibly extending a trade pause between these major economies, particularly ahead of the planned discussions between U.S. President Donald Trump and Chinese President Xi Jinping in South Korea later this week.
The economic calendar was relatively quiet on Monday, leaving many investors on the sidelines as they anticipate significant developments later this week. Key attention will be on the Fed’s monetary policy meeting set for Wednesday, along with Thursday’s preliminary estimates for Eurozone Q3 GDP, as well as the ECB’s policy announcements, which could both impact euro volatility considerably.
It’s widely anticipated that the Fed will lower interest rates by 25 basis points on Wednesday, particularly in light of the lackluster U.S. inflation data released last Friday. A lot of focus will be on the press conference following the policy meeting, where central bank Chairman Jerome Powell’s comments will be scrutinized for hints about another rate cut in December.
Daily Digest Market Trends: Risk Appetite, Expectations for Fed Rate Cuts Weigh on USD
- The euro was mostly steady on Monday, although its gains were capped by investor sentiment influenced by news on U.S.-China trade discussions and expectations for the Federal Reserve to ease monetary policy for the second consecutive time on Wednesday.
- Germany’s IFO business index rose to 88.4 in October, up from 87.7 in September, exceeding the forecast of 87.8 and providing a boost to the euro. All sectors showed an increase in economic expectations, hitting 91.6, which is the highest in three years, compared to 89.7 the previous month. Nevertheless, sentiment regarding the current economic situation dipped slightly from 85.7 to 85.5.
- U.S. Treasury Secretary Scott Bessent indicated on Sunday that U.S. and Chinese representatives had agreed on a favorable framework ahead of the Trump-Xi summit later this week, suggesting that the threat of imposing 100% tariffs may no longer be on the table.
- He also mentioned that Chinese authorities are open to postponing restrictions on rare earth exports to the U.S. for a year, during which they will reassess their stance.
- Latest U.S. consumer price index data showed inflation growth was slower than anticipated. The annual rate increased to 3.0% in September, up from 2.9% in August, which was below the market expectation of 3.1%. Moreover, core CPI growth slowed to 3.0% from 3.1%, contrary to expectations for consistent growth.
- These figures largely confirm that the Fed is likely to reduce interest rates by 25 basis points following this week’s monetary policy meeting. According to CME Group’s FedWatch tool, the chance of a quarter-point rate cut stands at an impressive 96.7% this week.
Technical analysis: EUR/USD Bullish Trend Faces Resistance at 1.1650
The bearish trend for EUR/USD from mid-September appears to be losing strength. The pair reached a low near 1.1545 in early October and is attempting a rebound; however, the upward momentum remains tepid as investors wait for essential economic indicators later this week. This situation places the currency pair in a sort of limbo between 1.1575 and 1.1650.
Bulls will need to break through the 1.1650-1.1660 resistance range (peaks from October 21-24) to consolidate a bullish trend and set sights on the October 17 high of 1.1728 and the October 1 high of 1.1780. On the flip side, a breach below the October 22 low around 1.1575 could bring the key support level at 1.1545 into play. Beyond that, a psychological target of 1.1500 seems plausible.
(This article was corrected to reflect a 96.7% likelihood of a quarter-point rate cut as shown by CME Group’s FedWatch tool, rather than the previously stated 6.7%.)
