An improvement in global business activity, slower US inflation growth, and a breakthrough in trade negotiations between Washington and Beijing should have boosted the EURUSD pair. However, there appears to be a factor hindering the euro's performance. Let's discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- US inflation has not risen significantly.
- Washington and Beijing have reached an agreement.
- The Fed may surprise with hawkish rhetoric.
- Long positions on the EURUSD pair can be opened on a breakout of 1.165.
Weekly US Dollar Fundamental Forecast
In order to escape from the escape room, you need to find several keys. Initially, the EURUSD pair attempted to resume its upward trend, but it was hindered by fears of accelerating inflation. Now investors are worried that the Fed will adopt a hawkish stance after cutting the federal funds rate. The FOMC meeting is another key, and the major currency pair will be able to resume its uptrend after this event.
In September, consumer prices and core inflation in the US rose by 3%, which was less than Bloomberg experts had expected. The report revealed that US companies were passing on some of the costs of tariffs to consumers, but not all of them. They were looking for workarounds. This approach suggests that inflation may not rise as much as expected. It will indeed be temporary. If so, the Fed can lower rates safely.
US Inflation Change
Source: Wall Street Journal.
Coupled with a pleasant surprise from European Purchasing Managers' Indexes, encouraging news from the US-China negotiations, and new records set by US stock indices, this should have shattered EURUSD bears. However, the US dollar managed to hold its ground, supported by FOMC hawks.
The euro is the currency of optimists. Therefore, the unexpected surge in European, American, and Asian purchasing managers' indexes should, in theory, be an excellent springboard for the EURUSD pair to surge higher. Business activity in the eurozone has unexpectedly reached its highest level since May 2024, and the growth of the global PMI indicates that the world economy has readjusted to Donald Trump's tariffs.
Euro-Area PMIs
Source: Bloomberg.
The US dollar gained ground in October amid escalated trade uncertainty. However, recent negotiations between Washington and Beijing have led to signs of de-escalation in the ongoing conflict. Chinese officials have stated that they have reached a preliminary agreement on issues such as export controls, fentanyl, and shipping fees. Treasury Secretary Scott Bessent has said that tariffs are not currently under discussion and that China is expected to make substantial soybean purchases.
Global stock indices have rallied, and the associated improvement in global risk appetite usually supports the EURUSD pair. The political situation in France has evolved, with the Socialists' increased demands for higher taxes on the wealthy. However, it appears that parliament is on the verge of reaching an agreement with the government.
Weekly EURUSD Trading Plan
Thus, the FOMC meeting is the main roadblock to the resumption of the uptrend in the major currency pair. Against this backdrop, the EURUSD pair may fall below 1.16 for a while. However, the euro can be purchased on pullbacks or on a return above 1.165.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
