The EUR/USD has fallen to a one-week low, now at 1.1586. This drop comes as the US Dollar gains strength due to cautious market sentiment ahead of speeches from officials at the ECB and the Fed. The ongoing US government shutdown, now in its fourth week, adds to market unease, with President Trump declining to negotiate with Democratic lawmakers until the government reopens. As there are no significant economic reports from either the Eurozone or the US, traders are paying close attention to speeches from ECB’s Lagarde and de Guindos, along with Fed officials. These speeches are not expected to provide new insights into monetary policies. While the euro has shown strength against the GBP, its performance against other major currencies has been inconsistent.

Market Sentiment Drivers

Market sentiment is affected by expectations of Fed easing, the US-China trade situation, and the government shutdown. Analysts predict a 25-basis-point rate cut by the Fed in late October. The ECB is expected to keep rates steady, targeting a 2% rate through 2026. Trump’s position on the shutdown and optimism regarding US-China trade talks also influence the market. Technical analysis points to a bearish trend for the EUR/USD. The pair has dropped below the 1.1600 support level, facing resistance at 1.1730 last week. There is a chance of revisiting recent lows around 1.1545, while a rise above 1.1650 is needed for upward movement. As of October 22, 2025, the EUR/USD pair is testing critical support around 1.0750, driven by familiar trends. This situation mirrors past instances when uncertainty about central bank policies led to a stronger dollar. The market remains sensitive to any signs of policy differences between the Federal Reserve and the European Central Bank.

Potential Federal Reserve Actions

The Federal Reserve is currently keeping rates steady, but futures markets show a 65% likelihood of a rate cut by March 2026. Recent US inflation data, which cooled to 2.8% year-over-year in September 2025, is fueling speculation about monetary easing. This echoes previous sentiments when analysts anticipated rate cuts during political unrest. Meanwhile, the European Central Bank seems more restricted, with the latest Eurozone manufacturing PMI at 48.5, indicating contraction for the third month in a row. This weak data suggests that the ECB will likely maintain its current policy for a while, making the euro less appealing. This policy gap is a major factor in the dollar’s strength. Ongoing budget negotiations in Washington contribute to the market’s cautious mood, creating political headwinds. Similar to the prolonged government shutdown in 2019, this current uncertainty is prompting traders to seek safety in the dollar. The CBOE Volatility Index (VIX) has also risen to 19.5 recently, reflecting this anxiety. In light of these circumstances, traders might consider strategies that anticipate further downside or limited upside in the EUR/USD. Buying put options on the euro or setting up put spreads can provide a defined-risk approach to positioning for a potential drop below the 1.0700 level. These bearish technicals are similar to the breakdown below 1.1600 that occurred under comparable economic pressures in the past. Create your live VT Markets account and start trading now.

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