Powell hasn't finished speaking yet, and the market has already retreated: How can EUR/USD still make a comeback?
2025-10-09 17:48:11
During the European session on Thursday (October 9th), the euro continued its three-day weakness against the dollar, trading above 1.16. The exchange rate remains under pressure after retreating from its weekly high. Near-term technical indicators have yet to show signs of a reversal, and short-term risk remains tilted to the downside. Fundamentally, the dollar is supported by cautious sentiment, while the euro is being squeezed by the dual pressures of internal uncertainty and a fluctuating policy outlook in Europe.
Over the past three trading days, the dollar's resilient rebound has been the primary driver of the euro's decline against the dollar. The market continues to ignore the noise surrounding the temporary US federal government shutdown and delayed macroeconomic data releases, shifting its pricing focus back to policy communication and the inflation path. While the latest Fed minutes offered no surprises, the phrase "some members remain concerned about inflation" reinforced the market consensus that the path to rate cuts is not one-way. Having already implemented a 25 basis point rate cut, while two more rate cuts haven't been completely ruled out, the path has become more flexible, allowing the dollar's interest rate premium to regain its time value. CME FedWatch indicates that the market currently priced in a 22% probability of a "hold" in December, supporting defensive buying of the dollar based on interest rate swaps and duration preferences.
During a data vacuum, the power of the market is particularly amplified. A cautious stance during the European session helped the US dollar hold its ground, making the euro's rebound against the US dollar unsustainable. Next, focus shifts to the US Eastern Timeframe, where Federal Reserve Chairman Powell will deliver his opening remarks at an event in Washington. If he reiterates the need for patience with further policy easing amidst the lack of key data due to the government shutdown, this could prompt the market to scale back bets on a December rate cut, potentially giving the US dollar renewed upward momentum.
In Europe, another source of pressure on the euro is the continued "French factor": Uncertainty in the political landscape remains lingering, and the perceived discount in macroeconomic policy coordination and the reform agenda has temporarily increased the eurozone's risk premium. Potential geopolitical volatility is also boosting safe-haven demand, indirectly supporting the US dollar. Within this context, a short-term rebound for the euro would require external support—such as a significant shift in tone from the Federal Reserve or a rapid de-escalation of internal eurozone risks—but there is currently insufficient evidence for either.
Overall, the current three main frameworks are a lack of data, dominant rhetoric, and fluctuating interest rate expectations. As long as the US dollar maintains its "high real interest rate + strong market influence," the euro's upward trajectory against the US dollar will remain challenging. For the euro to escape this predicament, in addition to waiting for the "French risk" to dissipate, it will also require marginal improvements in European growth to offset the US dollar's yield advantage.
As shown in the daily chart, the Bollinger Bands showed a mild opening. The price ran close to the lower band after three consecutive days of negative lines. The lower band was at 1.1610, forming the primary static/dynamic support band overlapping with the 1.1600 integer mark; the middle band was at 1.1728, which was the first strong resistance for the upward movement; the upper band 1.1845 and the previous high of 1.1918 formed a higher resistance cluster.
In terms of candlestick patterns, the recent bearish candlestick bodies are relatively long, with relatively limited upper shadows, reflecting "trend-following selling pressure" rather than simply emotional selling. Clear reversal signals such as hammers and morning stars have not yet appeared. The RSI (14) is around 40, in a weak zone but not yet in extreme oversold territory, suggesting "technical rebound potential exists but the winning rate is insufficient." Regarding the MACD (26, 12, 9), the DIFF is approximately -0.0013, the DEA is approximately 0.0004, and the histogram is approximately -0.0035. Negative momentum below the zero axis remains, with no signs of a golden cross yet.
If the exchange rate successfully breaks below the 1.1610/1.1600 support band, the volatility-following selling pressure triggered by the expansion of the lower Bollinger Band could intensify. Conversely, a break above 1.1728 and a backtest confirmation would allow for a mean reversion from the "lower edge of consolidation" to the "middle band" trend. Historically, the 1.1391 low and the recent 1.1918 high define the boundaries of a broad horizontal channel. Currently, the price is in the lower half of this range, and the trend advantage remains on the bear side.
Since the beginning of this week, risk appetite indices and cross-asset correlations have hinted at defensive rebalancing: equity markets have retreated, long-term US Treasury yields have become more sensitive to policy rhetoric, and the safe-haven nature of US dollar liquidity has increased in the foreign exchange market. Euro/USD market feedback has shown that attempts to break out have been thwarted by rapid selling pressure, the rebound has been weak in sustainability, and the price-volume relationship favors a "volume-led" decline—i.e., rebounds on reduced volume followed by declines on larger volume. Market sentiment remains skewed by market confirmation bias regarding whether the Federal Reserve will need another rate cut in December after its October cut. The mention of "more patience" can easily trigger a chain reaction of repricing, chasing prices, and stop-loss orders.
Correspondingly, sentiment remains relatively neutral: the RSI hasn't triggered traditional oversold thresholds, lacking the typical pattern of panic selling, suggesting any upward movement is more likely a "technical rebound" than a trend reversal. Contrarian indicators suggest that if Powell falls short of expected caution and instead sends a softer signal, it could trigger a short squeeze within the crowded short position. However, such a "short squeeze" lacks macroeconomic support, and its sustainability is questionable.
Fundamentals
Over the past three trading days, the dollar's resilient rebound has been the primary driver of the euro's decline against the dollar. The market continues to ignore the noise surrounding the temporary US federal government shutdown and delayed macroeconomic data releases, shifting its pricing focus back to policy communication and the inflation path. While the latest Fed minutes offered no surprises, the phrase "some members remain concerned about inflation" reinforced the market consensus that the path to rate cuts is not one-way. Having already implemented a 25 basis point rate cut, while two more rate cuts haven't been completely ruled out, the path has become more flexible, allowing the dollar's interest rate premium to regain its time value. CME FedWatch indicates that the market currently priced in a 22% probability of a "hold" in December, supporting defensive buying of the dollar based on interest rate swaps and duration preferences.
During a data vacuum, the power of the market is particularly amplified. A cautious stance during the European session helped the US dollar hold its ground, making the euro's rebound against the US dollar unsustainable. Next, focus shifts to the US Eastern Timeframe, where Federal Reserve Chairman Powell will deliver his opening remarks at an event in Washington. If he reiterates the need for patience with further policy easing amidst the lack of key data due to the government shutdown, this could prompt the market to scale back bets on a December rate cut, potentially giving the US dollar renewed upward momentum.
In Europe, another source of pressure on the euro is the continued "French factor": Uncertainty in the political landscape remains lingering, and the perceived discount in macroeconomic policy coordination and the reform agenda has temporarily increased the eurozone's risk premium. Potential geopolitical volatility is also boosting safe-haven demand, indirectly supporting the US dollar. Within this context, a short-term rebound for the euro would require external support—such as a significant shift in tone from the Federal Reserve or a rapid de-escalation of internal eurozone risks—but there is currently insufficient evidence for either.
Overall, the current three main frameworks are a lack of data, dominant rhetoric, and fluctuating interest rate expectations. As long as the US dollar maintains its "high real interest rate + strong market influence," the euro's upward trajectory against the US dollar will remain challenging. For the euro to escape this predicament, in addition to waiting for the "French risk" to dissipate, it will also require marginal improvements in European growth to offset the US dollar's yield advantage.
Technical aspects:
As shown in the daily chart, the Bollinger Bands showed a mild opening. The price ran close to the lower band after three consecutive days of negative lines. The lower band was at 1.1610, forming the primary static/dynamic support band overlapping with the 1.1600 integer mark; the middle band was at 1.1728, which was the first strong resistance for the upward movement; the upper band 1.1845 and the previous high of 1.1918 formed a higher resistance cluster.
In terms of candlestick patterns, the recent bearish candlestick bodies are relatively long, with relatively limited upper shadows, reflecting "trend-following selling pressure" rather than simply emotional selling. Clear reversal signals such as hammers and morning stars have not yet appeared. The RSI (14) is around 40, in a weak zone but not yet in extreme oversold territory, suggesting "technical rebound potential exists but the winning rate is insufficient." Regarding the MACD (26, 12, 9), the DIFF is approximately -0.0013, the DEA is approximately 0.0004, and the histogram is approximately -0.0035. Negative momentum below the zero axis remains, with no signs of a golden cross yet.
If the exchange rate successfully breaks below the 1.1610/1.1600 support band, the volatility-following selling pressure triggered by the expansion of the lower Bollinger Band could intensify. Conversely, a break above 1.1728 and a backtest confirmation would allow for a mean reversion from the "lower edge of consolidation" to the "middle band" trend. Historically, the 1.1391 low and the recent 1.1918 high define the boundaries of a broad horizontal channel. Currently, the price is in the lower half of this range, and the trend advantage remains on the bear side.
Market Sentiment Observation
Since the beginning of this week, risk appetite indices and cross-asset correlations have hinted at defensive rebalancing: equity markets have retreated, long-term US Treasury yields have become more sensitive to policy rhetoric, and the safe-haven nature of US dollar liquidity has increased in the foreign exchange market. Euro/USD market feedback has shown that attempts to break out have been thwarted by rapid selling pressure, the rebound has been weak in sustainability, and the price-volume relationship favors a "volume-led" decline—i.e., rebounds on reduced volume followed by declines on larger volume. Market sentiment remains skewed by market confirmation bias regarding whether the Federal Reserve will need another rate cut in December after its October cut. The mention of "more patience" can easily trigger a chain reaction of repricing, chasing prices, and stop-loss orders.
Correspondingly, sentiment remains relatively neutral: the RSI hasn't triggered traditional oversold thresholds, lacking the typical pattern of panic selling, suggesting any upward movement is more likely a "technical rebound" than a trend reversal. Contrarian indicators suggest that if Powell falls short of expected caution and instead sends a softer signal, it could trigger a short squeeze within the crowded short position. However, such a "short squeeze" lacks macroeconomic support, and its sustainability is questionable.
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