Rabobank warns of outsized market reaction
EUR/USD Dives to Fresh Weekly Lows as ECB Speakers Take Focus
EUR/USD has retraced previous gains on Wednesday, extending its decline to one-week lows below 1.1600, trading at 1.1586 at the time of writing. The United States Dollar resumed its uptrend during the early European session, with markets in a cautious mood ahead of speeches from European Central Bank (ECB) and Federal Reserve (Fed) officials later in the day.
On Tuesday, the President of the United States rejected meeting requests from Democratic lawmakers, stating that no negotiations would occur until the government reopens. The shutdown has now entered its fourth week, following the Senate’s eleventh failed attempt to pass a funding resolution.
With no major macroeconomic releases from the Eurozone or the United States, traders are closely watching speeches from ECB President Christine Lagarde, Vice President Luis de Guindos, and Fed officials. However, analysts expect little new insight into near-term monetary policy from these remarks.
The Euro has shown mixed performance across major currencies. It was strongest against the British Pound but declined against the United States Dollar. This reflects cautious sentiment and FX positioning ahead of key policy signals.
The United States Dollar lost momentum earlier this week as trade tensions with China faded and investor focus shifted to the prolonged government shutdown and expectations of monetary easing by the Fed.
A Reuters survey on Tuesday revealed that most analysts expect a 25 basis point rate cut at the Fed’s October 28–29 meeting, followed by another in December. However, 25 out of 33 economists expressed concern that the Fed may overextend its easing cycle, potentially setting a very low terminal rate by the end of next year.
The President of the United States affirmed that Republicans “will not be extorted” by Democrats, suggesting this shutdown could become one of the longest in history. Such an extended closure may weigh on United States GDP growth and undermine investor confidence in the Dollar.
Earlier this week, the President also announced plans to meet Chinese President Xi Jinping in South Korea next week, expressing hope for a “fair deal.” These comments helped ease fears of a trade war and triggered a sharp sell-off in precious metals.
EUR/USD’s upside attempts have been short-lived, and the pair resumed its decline during Wednesday’s European session, breaching the 1.1600 support area. The pair remains in a bearish trend following last week’s rejection at 1.1730.
Technical indicators are in negative territory. The 4-hour Relative Strength Index (RSI) is approaching oversold levels, while the Moving Average Convergence-Divergence (MACD) remains well below the signal line.
A retest of the October 9 and 14 lows near 1.1545 remains possible. Further down, the channel bottom around 1.1460 emerges as the next potential target. To the upside, an unlikely rebound beyond Tuesday’s highs near 1.1650 would shift focus toward the October 17 high at 1.1728, and further up, the October 1 high near 1.1775.