EUR/USD opens the door to some consolidation

EUR/USD finds its difficult to reverse Friday’s losses amid the tepid advance in the US Dollar. Meanwhile, investors continue to assess the ongoing US-China trade effervescence and the likelihood of a dovish Fed at its meeting next week.

EUR/USD Technical Overview 

EUR/USD’s price action looks unconvincing and unclear.

In case the ongoing recovery picks up a more serious pace, the pair should retarget the October peak at 1.1778 (October 1), seconded by the 2025 high of 1.1918 (September 17), all before the psychological 1.2000 hurdle.

Alternatively, the October floor at 1.1542 (October 9, 14) lines up as the immediate contention, followed by the August trough at 1.1391 (August 1), and the critical 200-day SMA at 1.1261. The loss of the latter could pave the way for a potential move to the weekly low at 1.1210 (May 29).

Meanwhile, while above the 200-day SMA at 1.1261, the near-term outlook for EUR/USD is expected to remain constructive.

Momentum indicators have lost some shine as of late: the Relative Strength Index (RSI) eases to nearly 47, indicative that further weakness could be lying ahead. In addition, the Average Directional Index (ADX) around 16 indicates that the current trend still lacks colour.

Still waiting for a spark

For now, EUR/USD remains in search of a convincing catalyst. A more dovish stance from the Fed, fading demand for US assets, steadier guidance from the ECB, or progress on the trade front could all finally give the single currency the push it needs to break higher in a more sustainable fashion.

Fundamental Overview

EUR/USD remains unable to trade in a clear direction at the start of the week, navigating a consolidative theme in the 1.1650 region following Friday’s marked pullback.

The pair’s erratic tone comes amid the broader indecision in the US Dollar (USD) and mixed US Treasury yields across the curve. That said, the US Dollar Index (DXY) is moving sideways in the 98.50–98.60 band, still trying to build on Friday’s decent advance.

Looking at the broader front, lingering uncertainty over US–China trade tensions is keeping prudence among traders well and sound, while investors wait for fresh clues from upcoming flash PMI releases and US inflation figures due later in the week.

Trade tensions back in the spotlight

US–China relations are once again grabbing market attention. Traders are watching closely to see whether President Trump and China’s Xi Jinping will meet later this month in South Korea, though the relationship still looks fragile.

Beijing’s recent decision to limit rare earth exports drew a sharp response from Washington, with Trump threatening triple-digit tariffs on Chinese goods and reigniting fears of a renewed trade war.

Still, there have been some tentative signs of de-escalation. Treasury Secretary Scott Bessent and China’s Commerce Ministry both said communication channels remain open, hinting at room for compromise and possibly an extension of the current tariff truce.

Fed keeps easing options open

In the US, the Federal Reserve (Fed) is widely expected to cut rates by 25 basis points at its next meeting on October 29.

The September “dot plot” showed a dovish tilt, signalling roughly 50 basis points of additional easing by year-end and smaller adjustments through 2026–27. Growth projections were nudged slightly higher to 1.6%, unemployment was steady at 4.5%, and inflation forecasts were left unchanged.

The latest FOMC Minutes suggest policymakers are keeping the door open for more easing if needed, though there’s no urgency.

Still around the Fed, Chair Jerome Powell acknowledged last week that hiring momentum has slowed, adding that the Fed will continue to take a “meeting by meeting” approach as it weighs softer labour data against still-sticky inflation.

ECB content to stay patient

The European Central Bank (ECB) also kept policy steady at its September meeting, sticking to a cautious, data-driven approach. Officials said inflation should gradually return to target, with core inflation expected to average 2.4% in 2025 before easing to 1.9% in 2026 and 1.8% in 2027.

President Christine Lagarde struck a calm tone, saying policy is “in a good place” and risks look balanced for now. She stressed that any future adjustment will depend entirely on incoming data.

The Account of that gathering echoed that sentiment: measured, but not gloomy. Policymakers sounded slightly more upbeat on euro area growth and saw little reason for extra stimulus, despite lingering uncertainty over US trade policy.

Market pricing currently points to around 23 basis points of easing by the end of 2026, reinforcing markets’ consensus that the central bank is done easing.