Original article by Barani Krishnan, Investing.com
Title: EUR/USD, USD/JPY: As the US Government Shutdown Looms, Traders Rely on Private Sector Data for Direction
With the potential for a partial U.S. government shutdown disrupting access to vital economic data, Forex traders are increasingly turning to private sources for clues about the direction of major currency pairs such as EUR/USD and USD/JPY. The uncertain fiscal landscape is placing greater importance on data from private agencies, as the usual guidance from federal agencies like the Bureau of Labor Statistics could be suspended during a funding lapse.
As traders attempt to make sense of economic signals during this politically turbulent time, currency markets are reflecting a state of growing uncertainty. The ripple effects are visible in both volatility indicators and overall trading volume.
Key Market Overview
The U.S. dollar’s recent performance has been pivotal in setting the tone for cross-currency valuation. After hitting multi-month highs, the dollar index (DXY) is reflecting strong bullish momentum, supported by robust private-sector economic releases and consistent central bank messaging. However, this dollar strength has been capped by rising concerns over an upcoming government shutdown and what it may mean for economic policy continuity.
– The U.S. dollar index, which gauges the greenback’s value against a basket of six currencies, has been trading near a 10-month high.
– EUR/USD continues to feel pressured under the weight of a firmer dollar, alongside soft Eurozone economic performance.
– USD/JPY shows resilience as Japanese authorities remain cautious, and the Bank of Japan (BoJ) maintains accommodative policies, increasing the appeal of yen-funded carry trades.
US Government Shutdown and Market Data Gaps
A government shutdown would freeze the release of numerous vital data reports, including reports from the Department of Labor and the Department of Commerce. Crucial indicators such as the monthly employment report (Non-Farm Payrolls), inflation figures from the Consumer Price Index (CPI), and Gross Domestic Product (GDP) would be delayed.
In the absence of these federal releases, market participants have begun relying more heavily on alternative data providers. Several private sector organizations, including ADP and S&P Global, supply economic indicators that demonstrate correlation with official government releases.
– ADP releases private payroll data monthly, ahead of the government-backed Non-Farm Payrolls.
– S&P Global issues PMI (Purchasing Managers’ Index) surveys, which reflect business activity and are widely used to assess economic trends globally.
– The Institute for Supply Management (ISM) also remains operational during shutdowns and provides key economic data in manufacturing and services.
Impact on Forex Market Behavior
During times of fiscal uncertainty, price action in major currency pairs often becomes more erratic. With the removal of reliable macroeconomic guides, Forex market participants are challenged by a reduced ability to anticipate central bank moves or identify economic inflection points. Without government transparency, the speculative environment intensifies, and short-term positioning frequently dominates trading behavior.
– Lower liquidity leads to higher volatility, particularly during newsless periods.
– Traders place a higher premium on unofficial or leaked information, increasing the risk of misinformation and false price spikes.
– Central bank statements and minutes gain significant weight in guiding markets due to the absence of concurrent economic indicators.
EUR/USD: European Weakness Meets Dollar Strength
The euro has struggled to gain traction against the U.S. dollar, facing a dual challenge: strong U.S. economic data supported by the Federal Reserve’s hawkish communication, and economic stagnation across the Eurozone. European Central Bank (ECB) policymakers face inflation that remains elevated, but regional growth is stalling, creating a dilemma between tightening policy further and avoiding recessionary pressures.
– Recent eurozone PMIs have shown contraction territory readings, particularly in Germany and France.
– European inflation has decreased from peak levels but remains above the ECB’s target.
– ECB policymakers, including President Christine Lagarde, continue signaling prudence in adjusting interest rates, often choosing to pause hikes temporarily.
The technical
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