On Friday, EUR/USD saw a bit of a rebound, climbing above 1.1600 after a notable drop in the US dollar linked to the escalating trade tensions between the US and China. Still, political issues in the eurozone and disappointing economic indicators seem to be limiting further gains. As of the latest update, the pair is at 1.1606, reflecting a 0.37% increase.
Dollar dips amid new tariff threats; French leadership changes boost euro optimism
The euro (EUR) bounced back on Friday, breaking a streak of four consecutive days of declines, even with ongoing political unrest in France. Recently, French President Emmanuel Macron brought back Sébastien Lecorne as prime minister after Lecorne resigned earlier in the week.
Lecorne accepted the position and shared on his X.com account, “I will do everything in my power to provide France with a budget by the end of the year and tackle the everyday issues facing my fellow citizens.” He further emphasized a need to end the political crisis affecting France’s image and vital interests.
The euro’s rise was partly fueled by weakness in the US dollar, which fell after President Trump’s warning about potential “significant tariff increases” on China, in light of recent strict export controls on rare earth minerals.
Additionally, data from the University of Michigan (UoM) indicated that consumer sentiment held steady in October, despite worries about the government shutdown and uncertainties in the job market and inflation rates.
Market Trends: EUR/USD Gains Despite Fed’s Hawkish Stance
- The US Dollar Index (DXY), which measures the dollar against a basket of six other currencies, slipped 0.52% to 98.87.
- The UoM consumer sentiment index dipped slightly, from 55.1 to 55, which was better than anticipated. Surveys suggested a decline in optimism, particularly among Democrats, with consumers feeling increasingly negative about their personal finances and the climate for purchasing durable goods. The same survey indicated one-year inflation expectations fell slightly from 4.7% to 4.6% but stabilized at 3.7% over the next five years.
- St. Louis Fed President Albert Moussallem remarked that the Fed’s dual mandate is under pressure as the job market shows some softening while inflation remains elevated. He described current policy as straddling “moderately restrictive and neutral,” yet asserted that overall financial conditions are still favorable.
- The money markets are now fully factoring in a 25-basis-point rate cut at the Fed’s upcoming meeting on October 29, with a 94% probability, according to data from the Prime Market Terminal Stochastic Tool.
Technical Outlook: EUR/USD Recovers to 1.1600, Preparing for Consolidation
EUR/USD shifted to a short-term bearish outlook after it fell below the 100-day simple moving average (SMA) at 1.1633 and the 1.1600 threshold. The Relative Strength Index (RSI) is now moving toward the neutral area at 50, indicating a decrease in selling pressure.
Immediate support levels are found at 1.1550 and 1.1500. If these levels are breached, the cycle low from August 1 st could be around 1.1391. Resistance levels are situated at 1.1650 and 1.1700. A sustained rally above 1.1700 could open the path to 1.1800 and potentially the July 1 high at 1.1830.
