Euro Is Ready to Storm New Highs

The U.S. Dollar Index (DXY) declined by 0.44% to 97.71 points this week, while the EURUSD rose by 0.48% to 1.17560. Federal Reserve Chair Jerome Powell briefly pressured the Euro last Tuesday. Although his tone was slightly more dovish than in his post-meeting comments on September 17, he still admitted that earlier Fed forecasts had overestimated the inflationary effects of U.S. president Donald Trump’s tariffs. The following day, the EURUSD dropped by 0.59% to 1.17370, and after stronger-than-expected U.S. GDP data revised upward to 3.8% QoQ from 3.3%, the pair fell another 0.66% to 1.16580. On Friday, the Personal Consumption Expenditures (PCE) price index came in line with expectations, rising to 2.7% YoY from 2.6% YoY, a neutral outcome for the Dollar. With oversold conditions easing, EURUSD closed the week at 1.17010.

Attention has now shifted to the looming U.S. government shutdown. Republicans and Democrats remain at an impasse, with neither side willing to make budgetary concessions. President Trump met with congressional leaders on Monday, but no agreement was reached. Vice President J.D. Vance later declared that a shutdown is now “most likely unavoidable,” meaning federal operations are set to halt on October 1. For the Dollar, this is moderately negative, as each week of shutdown cuts about 0.1 percentage point from GDP growth. A prolonged shutdown would strengthen the Fed’s case for two additional rate cuts before the end of 2025. The last shutdown, from December 2018 to January 2019, lasted 35 days, during which the EURUSD rose 1.9% in the first half. A similar move this time would lift the pair to 1.19700, putting it back on track toward the extreme target of 1.19500–1.20500, which was missed earlier due to Powell’s unexpectedly hawkish stance.

The ADP Nonfarm Payrolls report on Wednesday will likely serve as the key reference for the U.S. labour market. If the shutdown proceeds, the official jobs report scheduled for Friday may not be released at all, creating an information vacuum that could be filled with political commentary from Trump. This represents an additional downside risk for the Dollar.

Large investors made only minor adjustments to their positioning last week. They purchased $2.7 million in the WisdomTree Bloomberg US Dollar Bullish Fund (USDU), leaving $15.5 million of their initial $30.3 million bet on Dollar strength from early August. For now, institutional players appear to be largely standing aside.

From a technical perspective, the 1.16000–1.17000 support range held after being tested, and the pair is now trading above it. This increases the probability of a rally toward the extreme target of 1.19500–1.20500. However, further upside requires a decisive break above resistance at 1.17600–1.17800, as only a confirmed breakout would re-establish strong bullish momentum.