Global Economic Tensions Rise, Dollar Recovers, Euro Under Pressure
Recently, due to heightened global trade tensions, the dollar exchange rate has gradually recovered under the influence of multiple factors. Especially after U.S. President Trump threatened to impose a 100% tariff on Chinese goods starting November 1, the dollar was favored as a safe haven, rising strongly. This change has had a significant impact on the global foreign exchange market, with the EUR/USD trend being particularly noticeable.
Increased Political Uncertainty in France Puts Pressure on the Euro
Meanwhile, political uncertainty in France has exacerbated pressure on the euro. French President Macron reappointed Sébastien Lecornu as Prime Minister but was immediately faced with a no-confidence motion from opposition leaders Marine Le Pen and Éric Ciotti, seeking to overthrow Lecornu's government. The intensifying political strife has deepened market concerns about France's political stability, indirectly affecting the euro negatively. Despite diverging prospects in the European Central Bank's (ECB) monetary policy, France's political uncertainty has added new variables to the downside risk for EUR/USD.
Fed's Dovish Stance Fails to Suppress the Dollar
In the U.S., Federal Reserve Chairman Powell's dovish remarks have not effectively suppressed the dollar. Although the Fed maintains an accommodative outlook on the path to lowering interest rates, the U.S. economy and job market remain strong. Philadelphia Fed President Anna Paulson specifically noted that labor market risks are rising, and although the job market is not yet surprising, signs of weakness have appeared. Hence, Paulson believes the Fed should continue to cut rates to promote economic stability.
The Fed's rate cut expectations are still strong, with the market widely anticipating a 25 basis point rate cut at the October meeting, and a 97% probability of a rate cut at the meeting on October 29. The dollar's recovery has somewhat suppressed the euro's performance, further exacerbating the decline in EUR/USD.
Market Holds Cautious Outlook on Euro
From a technical perspective, after falling below the 100-day simple moving average (1.1637) and the 1.1600 psychological level, the EUR/USD short-term trend shows a bearish pattern. The 14-day relative strength index (RSI) fell below 40, indicating that the euro is facing increased downward pressure. The current key support level for EUR/USD is at 1.1550; if this support is broken, it may further test the 1.1500 round number level and potentially test the August 1 low of 1.1391.
If the euro fails to effectively hold at 1.1550 support, 1.1500 will become the next key support area. Conversely, on the upside, 1.1600 and 1.1650 will be prime resistance levels, and surpassing the 1.1700 resistance could allow EUR/USD to test highs of 1.1800 or even 1.1830.
This Week's Economic Agenda
This week, the market will focus on speeches by Fed Chairman Powell and ECB President Lagarde. The statements by these two central bank leaders might further influence market expectations for monetary policy and have a profound impact on the trends of the dollar and the euro. In particular, the ECB's policy stance will determine the euro's short-term direction.
Additionally, the release of European economic data will also be closely watched. Notably, changes in Germany's Harmonized Consumer Price Index and Eurozone economic indicators could provide important clues for future monetary policy decisions.
Overall, the global economic uncertainty and the difference in monetary policy between the Fed and the ECB are pushing the dollar's strong recovery while the euro faces adverse factors from political and economic sources. The market will continue to monitor the evolution of this situation and respond accordingly based on the Fed and ECB's policy movements.
