During the US Session The Euro is close to its recent highs after bouncing back from two-month lows around 1.1542. This change comes after Federal Reserve Chair Powell hinted at possible rate cuts, which has weakened the US Dollar. In August, Eurozone Industrial Production dropped by 1.2%, a smaller decline than expected. Powell also expressed concerns about the US labor market, suggesting more rate cuts could happen in October. During the US session, key events to watch include the New York Empire State Manufacturing Index and speeches from important Fed officials. We will also hear from ECB Vice President Luis de Guindos in Madrid. The Euro gained 0.15% against the US Dollar, while other currencies like the GBP and JPY decreased. The dovish stance of the Fed has improved market sentiment, even with the ongoing US-China trade tensions. From a technical perspective, the EUR/USD faces resistance, failing to hold above 1.1542 again. With momentum on the rise, key challenges are at the neckline of 1.1630 and the descending channel top at 1.1675. Future speeches from Fed leaders like Miran, Waller, and Schmid, scheduled for 2025, will keep influencing markets. These addresses will reflect the ongoing Fed strategies and economic policies. Federal Reserve Signaling The Federal Reserve’s intention to cut rates is weakening the US Dollar. This creates a favorable environment for the Euro, which is staying strong around 1.1650. The differences between the Fed and other central banks are a significant factor for currency markets in the upcoming weeks. The Fed’s worries about the American labor market seem valid, enhancing the credibility of its dovish approach. The most recent non-farm payrolls report for September 2025 revealed a significant slowdown in job creation to just 98,000, which fell short of analyst expectations. This weak data almost ensures the 25-basis-point rate cut that the market is now fully anticipating for the end of October. For derivative traders, this situation means betting on a higher EUR/USD is the favored strategy. The rise in one-month implied volatility for the pair to 8.2% suggests the market is preparing for more significant moves. Buying call options or setting up bull call spreads on the Euro can be an appealing way to gain exposure while managing risk. We are keeping an eye on the 1.1675 level, aligning with the top of a descending channel, as the next significant target. The recent double bottom formation at 1.1542 provides a strong support level to trade against. A solid break above resistance would indicate that the Euro’s recovery has more room to grow. This setup resembles market trends from late 2023 when the US Dollar Index (DXY) fell from over 106 to below 102 as markets started to expect a shift in Fed policy away from rate hikes. Historically, the early phase of a Fed easing cycle has been negative for the dollar. We believe this pattern is repeating now. Additionally, the European Central Bank does not face similar pressure to cut rates, which should keep supporting the Euro. Eurozone core inflation has stubbornly remained above the 2% target, holding at 2.4% in the latest reading for September 2025. This divergence in policy between a dovish Fed and a more patient ECB strengthens the case for a higher EUR/USD exchange rate. Create your live VT Markets account and start trading now.

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