The Euro is extending its gains against the US Dollar, trading above 1.1700 on Friday. This marks its strongest weekly performance in three months. The US Dollar is facing pressure from ongoing concerns about a trade dispute between the US and China, coupled with growing expectations for further interest rate cuts by the Federal Reserve. Investors are now closely watching the Eurozone's final Harmonized Index of Consumer Prices (HICP) data for September.
Key Takeaways
- The Euro is experiencing its best weekly performance in three months against the US Dollar.
- US Dollar weakness is driven by Sino-US trade war concerns and anticipated Federal Reserve rate cuts.
- Eurozone HICP data is expected to confirm accelerating inflation in September.
- Federal Reserve officials have hinted at further rate reductions in the coming months.
- Political stability in France has provided additional support for the Euro.
US-China Trade Tensions Weigh on Dollar
The trade relationship between the United States and China continues to impact global markets. US President Donald Trump recently stated that the US is already engaged in a trade war with China. Adding to these tensions, Treasury Secretary Scott Bessent accused a Chinese trade negotiator of arriving in Washington uninvited and displaying "unhinged" behavior.
These developments have created significant uncertainty among investors. The prospect of an escalating trade conflict often leads to a preference for safer assets, but in this instance, the US Dollar has been negatively affected by the broader economic implications.
Trade War Impact
Trade disputes can disrupt supply chains, increase costs for businesses, and reduce global economic growth. This uncertainty typically leads to currency fluctuations as investors react to perceived risks.
Federal Reserve Signals Further Rate Cuts
Expectations for Federal Reserve interest rate cuts are also contributing to the US Dollar's decline. On Thursday, Fed Governor Christopher Waller voiced support for another rate cut in October. Stephen Miran, a recent nominee to the Fed's board, further emphasized the need for more aggressive rate reductions.
These comments align with warnings from the Fed's Beige Book, which highlighted signs of economic deterioration. The Beige Book noted weakening consumer spending and a stalled labor market. Businesses expressed concerns about the uncertain economic outlook and the impact of higher tariffs. Such signals strengthen the argument for a series of rate cuts in the near future, putting downward pressure on the US Dollar.
"Fed Governor Christopher Waller said on Thursday that he favors another interest rate cut in October, while Stephen Miran, Trump's recent pick to the board, reiterated the need for more aggressive cuts."
Economic Slowdown Concerns
The Federal Reserve's Beige Book report indicated an economic slowdown. Consumer spending is showing signs of weakening, and the labor market has stalled. Businesses are worried about the uncertain economic climate and the effects of increased tariffs. These factors support the case for the Fed to implement more rate cuts in the coming months.
Eurozone Inflation Data in Focus
On Friday, the primary economic highlight for the Eurozone is the final Harmonized Index of Consumer Prices (HICP) data for September. Analysts expect this report to confirm an acceleration in price pressures. The consensus forecast for the year-on-year HICP is 2.2%, up from 2.0% in the previous month. Core HICP, which excludes volatile items like food and energy, is anticipated to remain steady at a 2.3% yearly rate.
A higher-than-expected inflation reading could bolster the Euro, as it might reduce the likelihood of further rate cuts by the European Central Bank (ECB). On Thursday, ECB Governor Pierre Wunsch stated that the probabilities for an additional rate cut are diminishing. Governor Martin Kocher affirmed that the central bank is "at the end of the rate-cutting cycle or very close to it."
Understanding HICP
The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of goods and services in the Eurozone. It is a key indicator for inflation and helps central banks assess economic stability and purchasing power. A higher HICP generally indicates stronger inflation.
Daily Market Movements and Euro Strength
The US Dollar is currently on track for its worst weekly performance in several months. This weakness stems from the combination of US-China trade tensions, increasing signals for Federal Reserve rate cuts, and a lack of progress on government funding, which suggests a prolonged US shutdown. The Fed's Beige Book report earlier this week also contributed to the Dollar's pressure by warning of an economic slowdown.
Conversely, the Euro has found additional support from political developments in France. Prime Minister Sébastien Lecornu successfully survived two no-confidence votes on Thursday. This outcome eased some concerns about France's political stability. However, Lecornu still faces the challenge of passing a tightening budget through a divided parliament before the year's end.
- Euro (EUR) Performance Today:
- Against USD: +0.31%
- Against AUD: +0.49% (strongest gain)
- Against JPY: -0.14% (weakest performance)
Technical Outlook for EUR/USD
The EUR/USD pair is appreciating for the fourth consecutive day. It is set to achieve its best weekly performance since mid-July. The price action is approaching the target of a Double Bottom pattern, around 1.1730. The 4-hour Relative Strength Index (RSI) is entering overbought levels, which suggests the pair might pause its rally or experience some profit-taking.
A confirmed move above 1.1730 could open the path towards the October 1 high, near 1.1780. Further resistance would then be found at the September 23 highs, around 1.1820.
On the downside, a potential correction from the recent four-day rally might test the reverse trendline, currently near 1.1665. Below this level, Thursday's low near 1.1640, the psychological level of 1.1600, and the October 14 low in the area of 1.1545 would act as the next support levels.
Key Technical Levels
- Resistance 1: 1.1730 (Double Bottom target)
- Resistance 2: 1.1780 (October 1 high)
- Resistance 3: 1.1820 (September 23 highs)
- Support 1: 1.1665 (Reverse trendline)
- Support 2: 1.1640 (Thursday's low)
- Support 3: 1.1600 (Psychological level)
- Support 4: 1.1545 (October 14 low)
