Dollar Weakens Amid Rate Cut Bets; EUR/USD Surges to New Highs

UPDATE: The USD is experiencing a significant decline as market sentiment turns risk-off, driven by fears surrounding regional bank loans and ongoing pressure in money market rates. This shift is causing heightened expectations for rate cuts from the Federal Reserve.

Just announced, the weakening of the dollar comes as U.S. equities continue to falter, pushing Treasury yields lower. The ongoing U.S. government shutdown is delaying crucial economic reports, raising concerns about the greenback’s stability. Analysts warn that the dollar’s “repricing trade” hinges on robust U.S. labor market data, which is critical to maintaining bullish momentum.

The Bureau of Labor Statistics confirmed that despite the shutdown, the U.S. Consumer Price Index (CPI) report will be released on October 24. This report is anticipated to be a major risk event, particularly in light of current tensions in U.S.-China relations. If negative developments arise before this date, fears of economic downturn may overshadow the CPI figures.

On the EUR/USD front, the single currency has found support following the easing of French political risk after Prime Minister Élisabeth Borne survived a no-confidence vote. The European Central Bank (ECB) is maintaining its current rate policy, with no adjustments expected unless there is a significant deviation from inflation targets.

Technical analysis shows that EUR/USD has broken above a major trendline, with buyers pushing aggressively. The immediate target is around the 1.1831 level. A successful break above this resistance could lead to new cycle highs, while sellers are likely to target a return to the 1.16 support level if the price retreats.

Intraday analysis reveals a minor upward trend, suggesting that buyers will continue to leverage this momentum. However, sellers are poised to enter the market should the price dip below current levels.

As the market focuses on the developing situation surrounding regional banks and shifting money market rates, traders are advised to remain vigilant. The lack of scheduled economic reports today keeps the spotlight on external factors, particularly U.S.-China developments.

This urgent situation in currency markets highlights the interconnectedness of global economic events. As investors brace for the upcoming CPI report, volatility is expected to remain high in the days leading up to October 24.