EUR/USD: The Fed will put the recovery to the test

EUR/USD clinches its fifth day in a row with gains, surpassing its transitory 100-day SMA in the 1.1660-1.1670 band amid a modest pullback in the Greenback and steady hopes of a US-China trade agreement. On Wednesday, the Fed is widely anticipated to trim its FFTR by 25 bps.

EUR/USD Technical Overview

EUR/USD keeps its gradual recovery unabated so far, approaching the key 1.1700 hurdle.

Further up emerges the weekly peak at 1.1728 (October 17), followed by the October ceiling at 1.177 (October 1). Extra gains should then open the door to a probable move toward the 2025 top of 1.1918 (September 17), before the 1.2000 threshold.

Alternatively, the October floor at 1.1542 (October 9, 14) lines up as the immediate contention in case bears regain the upper hand, prior to the August low at 1.1391 (August 1), and the key 200-day SMA at 1.1300. A breach below this region would put the weekly valley at 1.1210 (May 29) back on the radar.

In the meantime, further gains remain on the table as long as EUR/USD trades above its key 200-day SMA.

Additionally, momentum indicators now show some improvement: the Relative Strength Index (RSI) surpasses the 50 yardstick, paving the way to extra advances in the short-term horizon, while the Average Directional Index (ADX) easing to nearly 14 indicates that the current trend lacks juice.

Still waiting for a spark

For now, EUR/USD is holding its ground, but a clear catalyst is still missing: Further dovishness from the Fed, fading appetite for US assets, a cautious-for-longer tone from the ECB, or concrete progress on trade could finally give the single currency the push it’s been waiting for.

Fundamental Overview

EUR/USD extended its winning streak to a fifth straight day on Tuesday, climbing back toward the 1.1670 area, roughly where its provisional 100-day SMA sits.

The move keeps the pair’s recovery on track, helped by renewed weakness in the US Dollar (USD) as Treasury yields retreat and traders turn cautious ahead of Wednesday’s Federal Reserve (Fed) meeting. On the latter, the Fed is widely expected to trim the Fed Funds Target Range (FFTR) by 25 basis points to 3.75%–4.00%.

In the meantime, the US Dollar Index (DXY) continues to navigate below the 99.00 mark, lingering over multi-day lows.

Political gridlock adds to nerves

The prolonged government shutdown in Washington is starting to bite. It’s been almost a month, and lawmakers remain at a stalemate with no end in sight. On Tuesday, Senate Democrats once again blocked the Republicans’ short-term funding bill in a 54–45 vote. Let’s recall that Republicans needed 60 votes to move forward a bill that would have kept the government funded through late November.

At 28 days and counting, this is now the second-longest shutdown in US history. If it runs past November 5, it’ll officially set a new record.

The economic fallout is building. Hundreds of thousands of federal workers are still unpaid, key public services are grinding to a halt, and business sentiment is softening. Those effects are starting to seep into hiring and GDP growth, both already showing early signs of strain.

Trade calm brings cautious optimism

After months of tension, the US–China trade story finally seems to be turning a corner. Over the weekend, top economic officials from both sides thrashed out a framework agreement that could pave the way for a broader deal when Donald Trump and Xi Jinping meet on Thursday.

Here’s what’s reportedly been agreed so far:

• Tariffs off the boil: Treasury Secretary Scott Bessent says the deal would avert the 100% tariffs the US had threatened on Chinese goods.

• Rare earth reprieve: Beijing is expected to delay new export controls on rare-earth minerals and magnets, easing pressure on global tech and manufacturing supply chains.

• Farmers back in play: China is likely to restart large-scale purchases of US soybeans, offering long-awaited relief for American farmers.

• Broader cooperation: Talks have also touched on tricky issues like TikTok’s ownership and data governance, collaboration on fentanyl precursor chemicals, and ways to reduce supply-chain vulnerabilities.

• Markets have welcomed the progress, though investors know the real test will come later this week when Trump and Xi decide whether to sign off on the deal.

Fed keeping things flexible

The Fed looks set to deliver another 25-basis-point rate cut at its October 29 meeting, while implied rates place just over 114 basis points of easin by end of 2026.

Its latest dot plot leaned dovish, suggesting around 50 basis points of further easing by year-end, with smaller moves pencilled in through 2026–27. Growth expectations nudged slightly higher to 1.6%, unemployment stayed at 4.5%, and inflation projections were unchanged.

Minutes from the last meeting reinforced that the Fed is keeping its options open: ready to step in again if needed, but not rushing to act.

Chair Jerome Powell acknowledged that the labour market has cooled and reiterated that decisions will be taken “meeting by meeting” as the Fed weighs softer job data against still-sticky inflation