The EUR/USD pair is trading slightly lower around 1.1720 during Monday’s early Asian session, extending its pullback from last week’s highs. Despite the downside pressure, losses appear limited as US Dollar (USD) strength may face headwinds amid growing expectations of Federal Reserve rate cuts.
Fed Rate Cut Expectations Limit USD Upside
The CME FedWatch Tool now shows a 95% probability of a 25 basis point rate cut in October, with an 84% chance of another cut in December. These dovish expectations are weighing on the Greenback, even as it initially gained ground on safe-haven flows.
At the same time, the ongoing US government shutdown, now stretching into its second week after the Senate failed to pass funding bills for the fourth time, adds to economic uncertainty. The stalemate has delayed key economic releases, including the critical non-farm payrolls (NFP) report for September, originally due last Friday.
ECB’s Cautious Stance Could Support the Euro
On the Euro side, the pair may find support as the European Central Bank (ECB) appears in no rush to change its policy. ECB policymaker Martins Kazaks reiterated last week that the current level of interest rates is “very appropriate,” stressing the need for flexibility amid ongoing economic uncertainty.
Today, traders will closely watch for comments from ECB Vice President Luis de Guindos and Executive Board member Philip Lane. Additionally, focus will turn to the release of the Eurozone Sentix Investor Confidence Index and August Retail Sales data for further direction.
Technical Outlook: Downside Limited Above 1.1700
- Immediate support is seen near the 1.1700 handle, with stronger support at 1.1645 (recent monthly low).
- Resistance lies at 1.1730, followed by the 1.1760–1.1770 zone.
- The overall bias remains cautious as the pair trades within a tight range, with macro headlines likely to drive short-term moves.
Euro FAQs: What Drives the Single Currency?
- Monetary Policy: ECB interest rate decisions and inflation control are major drivers. Higher rates tend to strengthen the Euro.
- Economic Data: Reports like GDP, PMIs, employment, and inflation figures from major Eurozone economies (especially Germany and France) significantly influence EUR/USD.
- Trade Balance: A strong export surplus typically supports the Euro due to higher foreign demand.
- Global Risk Sentiment: As a major reserve currency, the Euro also responds to shifts in risk appetite and geopolitical developments.