The US dollar has bounced back this morning, and this has kept the under mild pressure, while verbal jawboning in Japan hasn’t helped to stop the yen from sliding to new multi-month lows against the US dollar. With the US government about to reopen again, this has helped to lift sentiment and provided some support for the US dollar for now.
But the greenback could struggle moving forward against the likes of the euro, which remains largely supported against other major currencies.
US Dollar Finds Mild Support on Government Re-Opening Optimism
The mild pullback in the EUR/USD exchange rate comes as the US dollar stages a slight recovery after it took a tumble yesterday on the back of the weekly jobless report, which showed a further deterioration in the US labour market, with private employers shedding an average of 11,250 jobs in the week ending 25th October.
The data suggests that the labour market continued to struggle. Additionally, sentiment among US small businesses eased in October to a six-month low due to a deterioration in earnings and less optimism about the economy. With the US government about to reopen, this has provided some relief for the US dollar.
But we will likely gather more evidence of an economy running on empty, once government data starts to roll in. That should cement expectations about a further rate cut in December and reaffirm my bullish view on the EUR/USD.
Concerns Over US Employment Mount
Yesterday, the ADP confirmed what many analysts had predicted following the recent announcements of large layoffs at a few large companies. Still, the scale of the drop was a bit of a surprise, and that caught FX traders by surprise as the US dollar index took a quick dive. With rising concerns that the labour market could be weakening further, up went traders’ expectations of another 25 basis point rate cut in December.
The ADP stated that “for the four weeks ending Oct. 25, 2025, private employers shed an average of 11,250 jobs a week, suggesting that the labour market struggled to produce jobs consistently during the second half of the month.”
It will be interesting to know whether these job losses were directly motivated by AI, something which could become a reality soon, given the pace at which the technology is improving and expanding.
Anyway, the long and short of it is that the data should see Fed officials grow more concerned about the labour market slowdown than Chairman Powell conveyed at the FOMC press conference a couple of weeks ago. That in turn should mean more , especially if cools further, which appears likely with a slowing economy. Consequently, the may struggle to break above the 100.00 level.
Grim German ZEW Reading
From the eurozone’s calendar, there hasn’t been an awful lot to focus on this week. We did have stronger Italian industrial production today, which came in at 2.8% m/m vs. 1.5% expected. But this was completely ignored. This week’s data releases included the , which fell further into the negative at -7.4 vs. -3.9 expected.
On top of this, yesterday showed a not-so-great reading of 38.5 vs. 41 expected in the expectation index. Recent business data out of Germany has been far from great, but the data did show some signs of encouragement last week.
Also helping to cushion the euro’s downside has been data from southern European countries like Spain and Italy, with rising stock prices also adding a layer of positivity into the mix. And, with lots of German fiscal spending to come, this should keep the EUR/USD largely supported.
EUR/USD Technical Analysis and Key Levels to Watch
Following yesterday’s gains, the EUR/USD attempted to break out of a short-term bearish channel, but resistance held right where it needed to – around 1.1600. A potential break above here would thus reinstate the bullish technical bias. The mini bear channel has been in place ever since the exchange rate topped out at just shy of 1.1920 in mid-September. Since then, a series of short-term lower lows has been formed.
Despite the EUR/USD’s short-term lower lows, we haven’t yet seen a major lower low form on the higher time frames. The last significant low was made at just below 1.14 handle on the first day of August. That temporary break of the 1.14 handle paved the way for a sharp rally on that particular day, when a clear bullish signal was formed on the daily chart.
Therefore, for as long as this level now holds as support, any short-term weakness should be taken with a pinch of salt. That’s at least how I have been treating this recent pullback in the EUR/USD.
Anyway, in terms of the immediate-term levels, the area between 1.1575 to around 1.1590 is now the first major support zone to watch. Below that, October’s low at just north of 1.1520 is the next level of support ahead of the 1.1500 handle. On the upside, the next potential short-term resistance above 1.1600 is seen around 1.1625, followed by 1.1660. The October high comes in just below the 1.1780 level, followed by September and this year’s high of 1.1919.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.