EUR/USD trims losses following upbeat German business sentiment data

EUR/USD trims some losses and returns above 1.1630 from session lows at 1.1620, supported by a larger.than-expected recovery on German business sentiment on Monday. The pair, however, remains within previous ranges as investors bid their time awaiting developments from the trade negotiations between the US and China and the monetary policy decisions by the Federal Reserve (Fed) and the European Central Bank (ECB) due later this week.

The positive comments coming from the talks between US and Chinese negotiators in Malaysia this weekend seem to have paved the path for a trade deal at the meeting between US President Donald Trump and his Chinese Counterpart, Xi Jinping, in South Korea, later on the week, that would at least allow for the extension of the trade truce between the world’s major economies.

The economic calendar is thin on Monday, and investors are likely to remain on the sidelines ahead of key events this week. The main focus will be on the outcome of the Fed’s monetary policy meeting, due on Wednesday, but the Eurozone’s Q3 preliminary Gross Domestic Product and the ECB’s monetary policy decision, both on Thursday, might have a significant impact on Euro volatility.

Investors are widely expecting a 25-basis-point interest rate cut by the Fed on Wednesday, especially after the soft US inflation report released last Friday. The main attraction of the event is likely to be the ensuing press conference by the central bank’s Chair Jerome Powell, whose comments will be carefully analysed to assess the chances of another quarter-point cut in December’s meeting.

Daily digest market movers: Risk appetite, Fed cut hopes are weighing on the USD

• The Euro remains little moved on Monday but is holding previous days’ gains as the US Dollar remains trading sideways, with rallies limited by investors’ risk appetite due to headlines about the US-China trade negotiations and the expectations that the Fed will ease its monetary policy for the second consecutive time on Wednesday.
• Germany’s IFO Business Climate Index has improved to 88.4 from 87.7 in September, beating expectations of a 87.8 reading, which has provided some moderate impulse on the Euro. The gauge measuring the economic expectations has jumped in all sectors, industry, construction, and services, reaching its highest reading in more than three years, at 91.6, from 89.7 in the previous month. The sentiment about the current economic conditions, on the other hand has deteriorated to a reading of 85.5 from 85.7.
• On Sunday, US Treasury Secretary Scott Bessent affirmed on Sunday that US and Chinese representatives have agreed on a positive framework for the Trump-Xi summit later in the week, and suggested that the US president’s 100% tariffs threat is off the table.
• Bessent also affirmed that the Chinese authorities would be open to delaying the restrictions on rare earths trade with the US for one year and to reconsider their position in the meantime.
• On Friday, the delayed US Consumer Prices Index release showed a slower-than-expected inflation with the yearly rate accelerating to 3.0% in September from 2.9% in August, undershooting the market consensus of a 3.1% reading. Furthermore, the core CPI slowed down to a 3.0% yearly growth from 3.1% in the previous month, against market expectations of a steady 3.1% growth.
• These figures have practically confirmed that the Federal Reserve will cut rates by 25 basis points after its two-day monetary policy meeting on Wednesday. The CME Group’s FedWatch tool shows a 96.7% chance of a quarter-point cut this week.

Technical Analysis: EUR/USD keeps treading water within previous ranges

EUR/USD bearish trend from mid-September highs seems to have lost steam. The pair found a bottom around 1.1545 earlier in October and is trying to bounce up from there, but upside momentum remains frail, with investors awaiting key fundamental releases later in the week. This leaves the major currency pair wavering in no-man’s land, between 1.1575 and the 1.1650 area.

Bulls need to breach the 1.1650-1.1660 range (October 21-24 highs) to consolidate the bullish trend and shift the focus to the October 17 high at 1.1728 and the October 1 high near 1.1780. To the downside, a break of the October 22 low near 1.1575 would expose the key support level at the 1.1545 area. Further down, the 1.1500 psychological level seems like a plausible target.

(This story was corrected on October 27 at 10.10 GMT to say that The CME Group’s FedWatch tool shows a 96.7% chance of a quarter-point cut this week and not 6.7% as previously reported.)