Investors need a steady supply of data to make informed decisions, and a lack of statistics makes them anxious. In this regard, the end of the shutdown will trigger a strong market reaction to key macroeconomic reports. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The record-long shutdown is over.
- A number of reports may be irretrievably missing.
- The US dollar’s performance depends on interest rates.
- Long positions on the EUR/USD pair can be opened on a breakout of 1.1595.
Weekly US Dollar Fundamental Forecast
The conclusion of the longest shutdown in US history is merely a temporary agreement. The ongoing conflict between Democrats and Republicans regarding healthcare has been temporarily suspended until the end of the year. The government may close again at the end of January. However, while financial markets are optimistic, the decline of the US dollar as a safe-haven asset is driving a surge in the EUR/USD rate.
As is the case in any war, there are inevitable losses. The US administration has indicated that the October employment and inflation reports may not be released. The end of the shutdown means that the Fed will eventually receive economic statistics. However, the US regulator will be forced to make decisions in December with incomplete information. In the absence of comprehensive data, the likelihood of error rises significantly.
Boston Fed President Susan Collins has stated that the federal funds rate should be maintained at its current level for some time, as lowering it could lead to a slowdown or delay in achieving target inflation. Her hawkish speech led to a decline in the likelihood of the Fed easing monetary policy in December, with the futures market now indicating a 55% probability. Prior to this, the probability fluctuated between 62% and 72%.
Probability of Fed Rate Cut in December
Source: Wall Street Journal.
However, the derivatives market failed to provide support for the US dollar. According to Orbis, the value of the dollar hinges on the strength of trust in US politics and institutions, and that trust is currently being eroded, as the shutdown may be followed by another one. Meanwhile, Donald Trump may exert pressure on the Fed. The Supreme Court’s recent decision to repeal tariffs is expected to have a negative impact on the economy, potentially leading to criticism from other countries regarding the United States’ policy decisions.
The US dollar’s historical dominance in the foreign exchange market has been driven by high interest rates and steady economic growth. However, these factors are no longer as strong as they once were. ING’s analysis shows that the greenback will continue to depreciate, with the EUR/USD pair projected to rise to 1.22 by the fourth quarter of 2026 due to a decline in the cost of hedging currency risks associated with investing in US securities by non-residents. The dollar’s value depends on interest rates, which, according to the company, are expected to decline by an additional 75 basis points.
If that is the case, EUR/USD quotes will surge. According to Governing Council member Isabel Schnabel, the ECB’s deposit rate is at the appropriate level. Only significant shocks to the eurozone economy could alter this trajectory. The European Central Bank’s cycle of monetary expansion has come to an end, which means that the major currency pair’s future is now entirely in the hands of the Federal Reserve. As macroeconomic statistics become available again, investors will scrutinize the data closely.
Weekly EURUSD Trading Plan
The EUR/USD pair will likely continue its rally. Long positions formed at 1.15 and built up above 1.154 can be increased on a breakout of the resistance level of 1.1595.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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