Eurozone Stability Supports Gains as U.S. Stumbles

Key Takeaways:

*Inflation Holds: September Eurozone CPI rose to 2.2% and core held at 2.3%, reducing pressure on the ECB to ease further.

*Policy Contrast: Narrower bund-Treasury yield spreads supported the euro, as Europe’s steady stance contrasted with U.S. political dysfunction.

*Mixed Growth: Germany, France, and Italy posted weak PMIs, while Spain and the Netherlands showed resilience, underscoring uneven recovery.

Market Summary:

The Euro advanced toward the 1.18 level as U.S. fiscal paralysis contrasted with relative policy stability in Europe. Preliminary September CPI data showed headline inflation rising to 2.2% and core holding at 2.3%, easing concerns about disinflation and reinforcing the ECB’s wait-and-see stance. By anchoring expectations, the ECB has helped narrow the yield spread between U.S. Treasuries and German bunds, improving the euro’s appeal to global investors seeking alternatives to dollar assets.

Still, the Eurozone economy remains uneven. Manufacturing PMIs in Germany, France, and Italy lingered below 50, signaling contraction in industrial activity, though Spain and the Netherlands showed moderate resilience. Consumer demand has proven firmer than expected, with French and Spanish retail sales holding up despite tight financial conditions. In addition, EU initiatives targeting energy security and infrastructure spending could provide limited support into year-end, softening recession risks.

These dynamics mean euro strength is being driven more by U.S. weakness than by a robust European recovery. Yet, the contrast is enough to sustain demand for the single currency. The euro has broken above a descending trendline from July, shifting its technical profile and inviting renewed bullish positioning. Market participants are now eyeing 1.1800–1.1820 as the next resistance, with a break higher likely to trigger additional short covering.

Options data show increased appetite for euro upside protection, reflecting a growing conviction that the common currency will benefit as long as U.S. fiscal instability overshadows Eurozone fragility. For now, EUR/USD momentum appears skewed to the upside, with political headlines out of Washington likely to remain the dominant driver.

Technical Analysis 

EURUSD, H4: 

EURUSD has slipped back from the 1.1740 zone and is now consolidating within the mid-range of its ascending channel, holding above key support at 1.1690. The pair’s structure remains intact within the rising channel, though upside momentum has softened after repeated failures to sustain gains above 1.1740. A break higher would shift focus toward 1.1800, with further extension to 1.1900 if bullish momentum strengthens, while a close below 1.1690 risks exposing deeper retracement toward 1.1585.

RSI is currently at 47, easing below the neutral 50 mark, which indicates waning buying pressure after the recent bounce. MACD has flattened near the zero line, with momentum showing early signs of a bearish crossover, reinforcing the cautious tone. These readings suggest that price action is likely to remain range-bound until a clear breakout develops.

Overall, EURUSD retains a cautiously constructive outlook as long as it holds above 1.1690, but the absence of strong bullish signals tempers upside expectations. Traders will be watching the 1.1800 level as the critical short-term range, with direction likely to hinge on U.S. dollar drivers and incoming Eurozone economic data.

Resistance level: 1.1800, 1.1900

Support level: 1.1690, 1.1585