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The US dollar faces a pivotal week with the upcoming FOMC rate decision on Wednesday and at least 4 more rate decisions from other G10 nations. Among the pairs of to watch this week, the EUR/USD looks among the more interesting one, which has continually shrugged off political turmoil in France, suggesting that investors don’t see it spilling over to other European countries. In truth, much of the EUR/USD strength has to do with weakness for the dollar than strength for euro. But whatever is the case, the popular trading pair remains in a healthy bullish trend ahead of a key week featuring lots of central bank meetings and data. I still thing the EUR/USD could be heading to 1.20 in the coming days, barring a major surprise.
 

French downgrade hardly a shock

As mentioned, EUR/USD chart is holding steady despite Fitch cutting France’s credit rating on Friday evening. The downgrade was largely expected and already reflected in French debt markets. Instead, attention is firmly on Wednesday’s FOMC meeting, which is likely to be the key driver for EUR/USD over the coming days. But for the euro itself, the real question now is whether new Prime Minister Sébastien Lecornu can unite a fractured National Assembly around the unpopular, but necessary, path of fiscal consolidation. Markets will keep an eye on French fiscal developments, but I don’t see this turning into a wider eurozone crisis. Meanwhile on the data front, it’s a quiet week for eurozone figures, though there’s a busy line-up of ECB speakers. We did have Eurozone trade figures which were hardly inspiring, suggesting US tariffs are beginning to bite. But exports to China were also weak, so it was not all about tariffs. Perhaps it is a global slowdown weighing on exports more so than just tariffs. Still, more data is needed to make a judgment.
 

All eyes on Wednesday’s FOMC decision

It’s a huge week for central banks, with no less than five G10 meetings scheduled. The main event, certainly for the US dollar index, is, of course, the FOMC on Wednesday. A 25bp cut is widely expected, followed by two more in October and December. That makes a total of 75 bps of cuts. But markets are currently pricing in 68bp of that, suggesting there is more room for the dollar to fall if data weakness persists or the Fed signals two more cuts are on the way this year in the dot plots. The dollar may also come under sharp pressure if on Wednesday it is revealed that a 50bp cut was a closer call than most anticipate.

On the US calendar front, Tuesday brings August retail sales data, while Wednesday will deliver some housing market data (that will likely be completely overshadowed by the FOMC), and Thursday we will have weekly jobless claims data. Ahead of those, the Empire State Manufacturing Index will be published later today.
 

EUR/USD technical analysis and trade ideas

Despite the French political turmoil, the euro has been grinding higher in recent days and today it found itself holding the breakout above the key 1.17 handle which it took out last week. With price making higher highs and higher lows and holding above key levels, moving averages and trend lines, there is no doubt in my mind that the trend is still bullish on the EUR/USD. As such, there is little point in trying to short the pair or concentrating much on the potential downside targets for now. Instead, the focus should be on where to look for dip buying opportunities and where the pair might be headed from current levels.
 

(Click on image to enlarge)

Last week saw the EUR/USD break above its short-term bearish trend line. This has potentially opened the door to a continuation towards the July peak of 1.1830, with last week’s high of 1.1780 being an interim target. Beyond these levels, there is not much further obvious resistance seen except round like 1.1900 or 1.2000. The latter remains my main upside objective on the pair.

In terms of support levels to watch, the key one now rests at 1.1700, which previously acted as resistance, with a further support zone seen between 1.1560 and 1.1620. Crucially, the pair remains above its rising trend line, keeping the technical bias skewed to the upside, all thanks to a weaker US dollar.

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