During Friday’s European session, the EUR/USD rebounded from earlier losses, rising to 1.1550 after touching a low of 1.1530. The market lacks clear trends, leading to a flat performance for the week as Eurozone data is mixed and the U.S. data blackout continues. The U.S. Dollar Index turned negative, which supported the Euro. There are worries about a potential sell-off on Wall Street, which could impact the EUR/USD’s ability to rally. Additionally, a U.S. employment report revealed a drop in net jobs for October, raising speculation about a potential Federal Reserve rate cut in December.

Upcoming Events

Key upcoming events include speeches from European Central Bank (ECB) and Federal Reserve officials, along with the Michigan Consumer Sentiment Index. The U.S. government shutdown has delayed the Nonfarm Payrolls report. The Euro showed mixed performance, gaining against the New Zealand Dollar but falling against other currencies like the Japanese Yen. Concerns about overvalued AI stocks and risks reminiscent of the dotcom crash have created market caution. The CME Fed Watch Tool shows a 67% chance of a rate cut in December. However, Chicago Fed President Austan Goolsbee expressed caution about changing monetary policy without critical economic data. In Europe, the decline in Retail Sales and a smaller German trade surplus contrasted with positive data from the service sector, complicating the Euro’s recovery. Although there’s some bullish momentum, the EUR/USD needs to break above 1.1550 to confirm a shift in trend. The pair has support around 1.1530, with additional support at 1.1500 and 1.1470. The U.S. government shutdown is currently the leading issue, as the absence of official data creates uncertainty. This makes trading the EUR/USD tricky, as it’s range-bound around 1.1550, awaiting a catalyst to break free. The dollar is weak due to a private report indicating a surprising drop in jobs, prompting many to bet on a Federal Reserve rate cut in December. This week, the probability of that cut rose to 67% on the CME FedWatch Tool, limiting potential rallies for the dollar.

Market Uncertainties

However, the Euro faces its own challenges, with weaker-than-expected German trade data and shrinking retail sales across the Eurozone. These issues are hindering the EUR/USD from rising, despite the dollar’s weakness. The market is essentially in a tug-of-war between two weakening economies. Risk aversion is heightened, with Wall Street experiencing a sell-off due to concerns about an AI bubble, similar to the dot-com crash in 2000. The VIX, which measures market fear, has climbed above 22.5 this week, indicating significant investor anxiety and a higher chance of sharp, unpredictable price movements. With all this uncertainty, buying volatility might be safer than picking a specific direction. An options strategy like a straddle could profit if the pair makes a significant move, either up or down, following the Michigan Consumer Sentiment data release. The lack of other reliable U.S. data means the market may overreact to this event. For those seeking direction, the 1.1550 level is crucial. A confirmed break above it could push the pair toward 1.1580, making near-term call options an intriguing option. This would suggest that the dollar’s weakness is overpowering the Euro’s poor data. On the other hand, if the pair fails to hold at 1.1550 and sentiment worsens, a drop to 1.1500 is likely. In this situation, put options could be used to protect against or profit from a decline toward November lows. Historically, during prior government shutdowns like the one in 2013, consumer sentiment often suffered significantly, which would be bearish for the pair. Create your live VT Markets account and start trading now.

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