EUR/USD’s weekly leg higher remains firm, with spot challenging the key 1.1600 hurdle amid the third consecutive daily advance.
The extra gains in spot follow the persistent decline in the US Dollar (USD) as investors continue to pencil in extra easing by the Federal Reserve (Fed). In the meantime, the Greenback paid no attention to firm readings from the weekly labour market and Durable Goods Orders.
In the meantime, the US Dollar Index (DXY) intensifies its retracement, down for the fourth day in a row and returning to the area below its critical 200-day SMA (99.77), giving way to a deeper pullback in the short term.
Shutdown solved… but only for now
Washington has ended the 43-day government shutdown, though “solved” might be a bit generous. Lawmakers simply agreed to keep the lights on until January 30, meaning another showdown is already pencilled into everyone’s calendar.
The political script also flipped this time. Budget battles are usually driven by Republican resistance, but it was Democrats who held the line here. Both sides made plenty of noise, but the uncomfortable truth remains: US national debt is closing in on $38 trillion, rising by roughly $1.8 trillion every year.
Democrats argued the standoff was worth it to highlight the surge in health insurance costs weighing on 24 million Americans. Republicans pushed back that the economic fallout, namely delayed benefits, unpaid federal workers, and disrupted services, wasn’t worth the pressure tactic. A reversal of the usual roles.
A fresh push for Russia–Ukraine talks
Diplomacy may be warming again. President Volodymyr Zelenskiy said Ukraine is ready to move forward with a US-backed framework to end the war with Russia and is open to speaking directly with President Trump to iron out the sticking points. He also stressed that key European partners should be at the table.
Trump, speaking separately at the White House, claimed a deal is “getting close”, though he didn’t offer details.
There’s even chatter that Zelenskyy could travel to the US soon to advance negotiations, though Washington hasn’t confirmed any schedule yet.
Optimism is there, but cautious: Russia has made clear it won’t sign up to anything that falls short of its aims.
Fed: Cautious cuts and a divided committee
The Federal Reserve delivered exactly what markets were expecting on October 29: A 25 basis point cut and a light restart of Treasury purchases to keep funding markets smooth.
The vote was 10–2, lowering the Fed Funds Target Range (FFTR) to 3.75%–4.00%. Policymakers framed the move as insurance, not the start of a big cutting cycle.
Chair Jerome Powell highlighted a wide range of views inside the FOMC, reminding markets that a December cut is not locked in.
The Minutes echoed that caution: while most agreed October’s action was necessary, others warned that easing too quickly could slow progress back toward 2% inflation.
Markets are still skewing dovish, with around a 76% chance of a rate cut on December 10 and roughly 94 basis points of easing priced in by end-2026.
ECB: Happily doing nothing
Across the Atlantic, the ECB held rates at 2.00% for a third consecutive meeting. With inflation and growth both hovering near target, and 200 basis points of cuts already delivered this year, policymakers see little reason to move.
President Christine Lagarde said global risks have cooled slightly thanks to the US–China truce and targeted tariff rollbacks, but uncertainty remains high.
Market pricing suggests the ECB is firmly in pause mode: there is more than a 97% chance of no change next month, and minimal further cuts are expected through 2026.
Tech corner
EUR/USD’s rebound appears quite solid so far this week, eyeing a potential break above 1.1600 the figure sooner rather than later.
Indeed, further gains now target the November top at 1.1656 (November 13), a region reinforced by the provisional 55-day and 100-day SMAs. Further up comes the weekly highs at 1.1668 (October 28) and 1.1728 (October 17) prior to the October ceiling at 1.1778 (October 1).
Alternatively, a drop below the November floor at 1.1468 (November 5) could prompt a test of the key 200-day SMA at 1.1420 to emerge on the horizon, ahead of the August valley at 1.1391 (August 1). Down from here lines up the weekly trough at 1.1210 (May 29) followed by the May base at 1.1064 (May 12).
In addition, momentum indicators point to further gains in the very near-term horizon. That said, the Relative Strength Index (RSI) improves to nearly 52, while the Average Directional Index (ADX) near 13 is still suggesting a weak trend.
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All in all
EUR/USD has been grinding lower since topping 1.1900 in September, and with the Eurozone offering up very few fresh catalysts, the US Dollar is still calling the shots. A change in the Fed’s tone, a brighter global risk backdrop, or renewed investor interest in Eurozone assets could help the euro mount a better recovery. But for now, it’s still very much moving to the Greenback’s rhythm.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
