On Wednesday, EUR/USD showed strong demand, bouncing back from a two-month low of 1.1542 earlier in the week to just under 1.1650. Surprisingly, the euro seems to have largely ignored a drop in industrial production across the eurozone, which just came in at a decline of 1.2% for August. This decline, mainly driven by a drop in capital goods and durable goods, contrasts with a revised 0.5% growth in July and is slightly better than market forecasts that anticipated a 1.6% drop.
Federal Reserve Chairman Jerome Powell made remarks on Tuesday that shifted the market’s focus. Instead of worrying about inflation, he emphasized issues in the U.S. labor market and hinted that the Fed might consider cutting rates again as early as October—a shift that could change things up again. He also mentioned that the Fed is close to wrapping up its “quantitative tightening” program.
This U.S. trading session will be heavily concentrated on the New York Empire State Manufacturing Index as well as speeches from key Fed figures, including Christopher Waller and Stephen Milan, as well as Kansas City Fed President Jeff Schmidt. Also on the agenda is a talk from European Central Bank Vice President Luis Deguindos in Madrid.
Daily summary of market shifts: Support for the euro as sentiment improves
- Jerome Powell’s comments have sparked renewed interest in risk assets, underscoring a halt in the dollar’s momentum. Investor attention has shifted away from U.S.-China trade tensions and towards lower interest rates from the Fed, resulting in increased stock demand and pressure on the U.S. dollar.
- Powell pointed out the job market’s situation as more pressing than inflation, adding more weight to the argument for potential interest rate cuts in the near future. He noted that the government shutdown has not significantly hampered the economic outlook at this point.
- Market futures suggest a nearly certainty of a 25 basis point rate cut during the upcoming monetary policy meeting on October 28-29, with the likelihood of another rate cut in December now sitting at about 94.5%, up from less than 80% last week.
- Meanwhile, the ongoing trade conflict between the U.S. and China continues to escalate. President Trump has signaled intentions to halt certain business dealings in retaliation for China’s reluctance to buy American soybeans. Following recent tax hikes on cargo ships, the market reaction has been somewhat subdued, as many investors remain optimistic about a resolution between the two countries.
- In Europe, French Prime Minister Sébastien Lecornu has delayed controversial pension reforms until after the 2027 presidential elections. This decision may provide the cabinet some breathing room amid a no-confidence vote expected later this week, which should lend additional support to the euro, though budget approval remains a concern.
Technical analysis: EUR/USD
The failure of the bears to break through the support at 1.1542 indicates a potential double dip—a pattern often associated with trend reversals. The EUR/USD pair shows positive momentum, with the relative strength index remaining above 50.
Currently, the bulls are testing the resistance at 1.1630, which marks the previous high from Monday. If they succeed, the next significant resistance is seen around 1.1675, while a double bottom may form just beneath the October 6 high of 1.1730.
Conversely, if the intraday low of 1.1600 continues to drop, it could open the way for a revisit of the crucial support level at 1.1542. A confirmed break below this could see pressure mounting toward the August 5 low of 1.1530 and further down to the base of the descending channel at 1.1515.
