EUR/USD hold gains amid a weaker Dollar as the focus shifts to the Fed

EUR/USD remains fairly bid on Wednesday, with price action moving right below the 1.1650 area at the time of writing, from two-month lows at 1.1542 earlier in the week. The Euro has shrugged off the decline in the Eurozone’s Industrial Production and keeps drawing support from a weaker USD on the back of dovish remarks by Federal Reserve (Fed) Chairman Jerome Powell.

Data released by Eurostat revealed that the Eurozone Industrial Production declined 1.2% in August, driven by sharp declines in capital goods and durable consumer goods output. These figures reverse an upwardly revised 0.5% growth in July but improve market expectations of a 1.6% decline,

On Tuesday, Powell highlighted the deterioration of the US labor market rather than inflationary risks, suggesting that the central bank is ready to cut interest rates again in October. He also announced that the Fed is nearing a point where it will stop reducing its bond holdings, the so-called “Quantitative Tightening” programme.

During the US session, the focus will be on the New York Empire State Manufacturing Index and the speeches by Fed Governors Christopher Waller and Stephen Miran, and Kansas City Fed President Jeff Schmid. European Central Bank Vice President Luis de Guindos is also scheduled to speak at an event in Madrid.

Daily digest market movers: Euro bounces up as market sentiment brightens

• The dovish comments by the Federal Reserve Chairman Jerome Powell boosted risk appetite on Tuesday and halted the Greenback’s rally. Investors shifted their focus from the escalating tensions between the US and China, to the prospects of lower interest rates by the Fed, and risk appetite returned to the market, boosting demand for equities and weighing on the safe-haven US Dollar.
• Powell stated that employment is more concerning than inflation at the moment, strengthening the case for further interest rate cuts in the coming months, and affirmed that the lack of data amid the government shutdown has not clouded the economic outlook, at least for now.
• The CME Group’s FedWatch Tool shows that futures markets are practically fully pricing a 25-basis-point interest rate cut after the October 28-29 monetary policy meeting, while chances of another such cut in December have increased to 94.5% from below 80% last week.
• Meanwhile, the trade standoff between the US and China continues escalating. US President Donald Trump has threatened to end some of the cooking oil businesses with China in retaliation for Beijing’s refusal to buy US soybeans. This comes after Tuesday’s decision to raise taxes on each other’s cargo vessels, although the impact on the market has moderated, as investors remain confident that both countries will finally reach an agreement.
• In Europe, French Prime Minister Sébastien Lecornu suspended the controversial pension reform until at least after the 2027 presidential elections. This decision is expected to give the cabinet some leeway to survive a no-confidence vote due later this week, which has given some support to the Euro, although the issue of approving a budget remains open.

Technical Analysis: EUR/USD’s double bottom at 1.1542 hints at further recovery

EUR/USD bears failed to breach support at 1.1542 on their second attempt, highlighting a potential double bottom, a figure that often anticipates a trend shift. The pair is showing an improving momentum, with the Relative Strength Index popping up above the key 50 level.

Bulls are now testing the neckline of the mentioned double bottom at Monday’s high of 1.1630. Further up, the top of the descending channel will meet the price in the area of 1.1675. The double bottom’s measured target is right below the October 6 high, at 1.1730.

To the downside, the intraday low of 1.1600 has been holding downside attempts and closing the path towards the key 1.1542 level (October 9, 14 lows). A confirmation below here would put bears back in control and increase pressure to the August 5 low, at 1.1530, and the base of the descending channel, in the area of 1.1515.