Image Source: Pixabay
 

The US dollar has bounced back this morning, and this has kept the EUR/USD under mild pressure, while verbal jawboning in Japan hasn’t helped to stop the yen from sliding to new multi-month lows against the dollar. With the US government about to re-open again, this has helped to lift sentiment and provided some support for the dollar for now. But the greenback could struggle moving forward against the likes of the euro, which remains largely supported against other major currencies.
 

Dollar finds mild support on government re-opening optimism

The mild pullback in the EUR/USD exchange rate comes as the dollar stages a slight recovery after it took a tumble yesterday on the back of the ADP weekly jobless report which showed a further deterioration in US labour market, with private employers shedding an average of 11,250 jobs in the week ending 25th October. The data suggests that the labour market continued to struggle. Additionally, sentiment among US small businesses eased in October to a six-month low due to a deterioration in earnings and less optimism about the economy. With the US government about to re-open, this has provided some relief for the dollar. But we will likely gather more evidence of an economy running on empty, once government data starts to roll in. That should cement expectations about a further rate cut in December and re-affirm my bullish view on the EUR/USD. 
 

Concerns over US employment mount

Yesterday, the ADP confirmed what many analysts had predicted following the recent announcements of large layoffs at a few large companies. Still, the scale of the drop was a bit of a surprise and that caught FX trader by surprise as the US dollar index took a quick dive. With rising concerns that the labour market could be weakening further, up went traders’ expectations of another 25 basis point rate cut in December.

The ADP stating that “for the four weeks ending Oct. 25, 2025, private employers shed an average of 11,250 jobs a week, suggesting that the labor market struggled to produce jobs consistently during the second half of the month.”

It will be interesting to know whether these jobs losses were directly motivated by AI, something which could become a reality soon given the pace at which the technology is improving and expanding.

Anyway, the long and short of it is that the data should see Fed officials grow more concerned about the labour market slowdown than Chairman Powell conveyed at the FOMC press conference a couple of weeks ago. That in turn should mean more rate cuts, especially if inflation cools further, which appears likely with a slowing economy. Consequently, the US Dollar Index (DXY) may struggle to break above 100.00 level.
 

Grim German ZEW reading

From the eurozone’s calendar, there hasn’t been an awful lot to focus on this week. WE did have stronger Italian industrial production today which came in at 2.8% m/m vs. 1.5% expected. But this was completely ignored. This week’s data releases included the Sentix Investor Confidence index, which fell further into the negative at -7.4 vs. -3.9 expected. On top of this, Germany’s ZEW survey yesterday showed a not-so-great reading of 38.5 vs. 41 eyed in the expectation index. Recent business data out of German has been far from great but the PMI data did show some signs of encouragement last week. Also helping to cushion the euro’s downside has been data from southern European countries like Spain and Italy, with rising stock prices also adding a layer of positivity into the mix. And, with lots of Germany fiscal spending to come, this should keep the EUR/USD largely supported.
 

EUR/USD technical analysis and key levels to watch

Following yesterday’s gains, the EUR/USD attempted to break out of a short term bearish channel, but resistance held right where it needed to – around 1.1600. A potential break above here would thus re-instate the bullish technical bias. The mini bear channel has been in place ever since the exchange rate topped out at just shy of 1.1920 in mid-September. Since then, a series of short term lower lows were formed.
 

Despite the EUR/USD’s short term lower lows, we haven’t yet seen a major lower low form on the higher time frames. The last significant low was made at just below 1.14 handle on the first day of August. That temporary break of the 1.14 handle paved the way for a sharp rally on that particular day, when a clear bullish signal was formed on the daily chart. Therefore, for as long as this level now holds as support, any short term weakness should be taken with a pinch of salt. That’s at least how I have been treating this recent pullback in the EUR/USD.

Anyway, in terms of the immediate-term levels, the area between 1.1575 to around 1.1590 is now the first major support zone to watch. Below that, October’s low at just north of 1.1520 is the next level of support ahead of 1.1500 handle. On the upside, the next potential short term resistance above 1.1600 is seen around 1.1625, followed by 1.1660. The October high comes in just below the 1.1780 level followed by September and this year’s high of 1.1919.

More By This Author: