The Euro is holding steady above 1.1720 because of concerns about a possible US government shutdown after Democrats rejected a Republican bill. The EUR/USD pair is up by 0.20% and is currently trading at 1.1726. Political gridlock in Washington is weakening the US Dollar as leaders from both parties meet with the President. The Vice President has warned about the risk of a shutdown, and there are mixed messages from Federal Reserve officials on inflation and employment.

Eurozone Consumer Sentiment

In the Eurozone, Consumer Sentiment has improved but is still below the historical average. Key upcoming reports include ADP National Employment Change, ISM Manufacturing PMI, Initial Jobless Claims, and Nonfarm Payrolls. Despite strong data from the US housing market, the EUR/USD pair is rising. Pending Home Sales in August increased by 4%. The market expects a 25-basis-point interest rate cut from the Federal Reserve, with only an 11% chance of a larger cut. The EUR/USD has been rising recently and may settle around the 20-day Simple Moving Average. If it breaks above 1.1740, resistance could reach 1.1800. Conversely, if it drops below 1.1700, we could see levels around 1.1650. The political situation in Washington is the main factor driving the EUR/USD pair higher, leading to a weaker US Dollar due to fears of a government shutdown. The Euro’s position above 1.1720 primarily reflects this uncertainty rather than its own economic strength. This creates a short-term trading opportunity based on political news rather than economic reports.

Impact of Government Shutdowns

Government shutdowns have historically caused significant fluctuations in the Dollar. Looking back at the prolonged shutdown from late 2018 to early 2019, the Dollar Index (DXY) first dropped before recovering as markets refocused on economic fundamentals. With the deadline looming on September 30, 2025, we should prepare for sharp price swings influenced by news from Washington. Mixed signals from the Federal Reserve are adding to the market’s uncertainty, but the upcoming Nonfarm Payrolls report will be crucial. Recent data shows the US unemployment rate has risen to 4.1%, indicating that the labor market is cooling, as Fed officials have noted. A weaker jobs report might lead to an October rate cut and could push EUR/USD above the 1.1800 resistance level. On the other hand, we should watch the Euro’s potential as European economic sentiment is staying below its long-term average. The Eurozone manufacturing PMI for August was 47.3, indicating contraction, which limits the Euro’s upward movement. Any indication of a quick resolution to the US shutdown could reverse recent gains in the pair. As consolidation occurs around the 1.1740 level, we are looking for a trigger that could lead to a breakout. Derivative traders might consider buying call options with a strike price above 1.1800 to take advantage of a potential Dollar decline from a weak jobs report or a prolonged shutdown. On the flip side, put options below 1.1700 could serve as protection against a sudden political agreement, which would strengthen the Dollar and push the pair toward the 1.1600 support. Create your live VT Markets account and start trading now.

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