Title: EUR/USD Pauses After Six-Day Rally, Stabilizes Near 1.1590 Following US Government Reopening
Source: Adapted from an article originally published on VT Markets by the VT Markets Analyst Team: https://www.vtmarkets.com/live-updates/after-six-consecutive-days-of-gains-eur-usd-hovers-around-1-1590-following-the-us-shutdown-conclusion/
The EUR/USD currency pair paused near the 1.1590 level on Monday after a consecutive six-day winning streak that saw it reclaim significant ground against the US dollar. The pause comes in the wake of the temporary resolution to the US government shutdown, which removed a layer of political uncertainty affecting risk sentiment across financial markets.
While the euro displayed resilience through last week due to a weaker US dollar, the temporary resolution of the government shutdown in the United States over the weekend stabilized market sentiment, capping further gains for the euro in early-week trading. The market focus now turns toward economic data releases and upcoming central bank decisions, which will likely influence the pair’s direction in the near term.
This article offers a comprehensive breakdown of the macroeconomic factors, technical outlook, and geopolitical developments affecting the EUR/USD pair.
Macroeconomic Background and Recent Developments
In the past week, EUR/USD enjoyed a solid upward trajectory, largely prompted by dollar weakness and supported by stable European data. However, Monday’s minor pullback comes as a natural pause following strong momentum:
– The euro advanced due to a softening greenback, prompted by falling Treasury yields and tempered Federal Reserve rate-hike expectations.
– Last week’s weaker-than-expected US inflation data softened the outlook for further monetary tightening.
– A short-term solution in the US Congress ended the weekend government shutdown threat, temporarily removing one of the downside risks weighing on investor sentiment.
– Investors remain cautious, as the underlying causes of political friction in Washington are unresolved, which could raise concerns again when funding expires in the coming weeks.
The conclusion of the US government shutdown lifted some short-term pressure from the US dollar. However, the lingering uncertainty surrounding future fiscal compromises in the US means any newfound dollar strength may lack sustainability.
Meanwhile, the European Central Bank (ECB) continues its cautious policy approach, maintaining an accommodative tone that limits the euro’s upside potential over the longer term. Nonetheless, the euro remained underpinned during the recent rally by improved eurozone trade data and investor sentiment indicators.
Key Market Drivers of the Recent EUR/USD Rally
Several fundamental drivers contributed to the recent upswing in EUR/USD, pushing it from below the 1.1500 level to nearly 1.1600:
– US Dollar Weakness:
– Comments from Federal Reserve officials suggested a more data-dependent approach in the coming months.
– Weaker Non-Farm Payrolls (NFP) and subdued CPI readings undermined expectations for additional near-term rate hikes.
– Lower US Treasury yields reduced demand for the USD.
– European Fundamentals:
– Eurozone trade surplus figures surprised to the upside, signaling resilience in external demand.
– The ZEW Economic Sentiment Index and German PMI numbers, while not exceptional, stabilized after months of decline.
– ECB minutes revealed no immediate urgency to tighten policy, aligning with market expectations and avoiding surprise-driven volatility.
– Geopolitical Stability:
– The temporary resolution in the US political impasse helped stabilize investor risk appetite.
– Reduced market volatility in the wake of the shutdown supported continued strength in riskier assets, including the euro.
Technical Analysis: EUR/USD Outlook
Following six consecutive days of gains, EUR/USD encountered selling pressure near the 1.1590 mark. The currency pair now rests at a key technical juncture, with market participants closely observing the next moves.
Key Technical Levels:
– Immediate resistance lies near the 1.1600 round-number level, which acted as a ceiling during Monday’s Asian and early European sessions.
– A sustained breakout above 1.
Read more on EUR/USD trading.