Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1850.
- Add a stop-loss at 1.1650.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1650.
- Add a stop-loss at 1.1850.
The EUR/USD exchange rate was unchanged on Thursday morning as market participants waited for more information on the ongoing government shutdown in the United States. It was trading at 1.1730, a few pips below the highest point this week.
US Government Shutdown and Impact on the Fed
The EUR/USD exchange rate wavered as the US government shutdown entered the second day. In separate statements, White House officials said that they would start layoffs across various government agencies soon.
Historically, workers were furloughed during government shutdowns. As such, the threat of layoffs put pressure on Democrats, who have maintained their stance on having healthcare funding in any spending package.
More layoffs will worsen the labor market, which is already struggling. A report released by ADP showed that the economy lost over 36,000 jobs in September, much lower than the median estimate of 50,000 additions.
Therefore, the implication of this is that the Federal Reserve will likely slash interest rates in its October meeting. This will be the second consecutive month of cuts, which will likely bring interest rates to between 3.75% and 4%.
The European Central Bank (ECB), on the other hand, has hinted that it will maintain interest rates unchanged in the foreseeable future as inflation has remained near the 2% target.
A report released on Wednesday showed that the headline Consumer Price Index rose slightly from 2% to 2.2%, while the core CPI remained unchanged at 2.3%. Officials expect that inflation will remain near the target in the coming months.
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The main catalyst for the EUR/USD pair will be a speech by Luis de Guindos, who is the bank's vice president. In his recent statements, Guindos noted that the bank will maintain rates steady in the next meetings.
EUR/USD Technical Analysis
The daily timeframe chart shows that the EUR/USD exchange pair peaked at 1.1915 in September and then pulled back to a low of 1.1657, its lowest level on September 26.
It has remained above the ascending trendline that connects the lowest swings since May last year. This level has provided it with substantial support for the pair.
The pair has remained above the 50-day and 100-day Exponential Moving Averages (EMA). Therefore, the pair’s outlook will likely remain bullish as long as it is above the ascending trendline. A drop below that trendline will point to more downside.
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