FX.co ★ berta.hill | EUR/USD

EURUSD. Hello everyone. I want to share with you the latest data as of October 18 and my thoughts on the current situation, because the picture is becoming interesting and it directly concerns the levels we've been discussing recently. The fresh data confirm that the levels for the pair look very accurate, and the market is now truly balancing between them, which indicates that our previous calculations were correct. Dollar pressure has eased, giving the euro a chance to bounce, which we are observing now. But let's go through everything step by step so the logic of what’s happening is clear. Let's start with the Fed rate, because the October pause looks almost decided, and that's the main driver for the pair at the moment. The sharp drop in the probability of a rate hike in October became the key factor that changed the market balance. After Fed chief Kevin Warsh stated that the economy is broadly in line with expectations, the market repriced the odds and the probability of a pause at the October 28 meeting rose to 85 percent. A month ago the market saw the chances of a hike and a pause at roughly 50/50; now the probability of a hike has fallen to 15 percent, and this is a significant shift in market expectations. This is an important point because Warsh signaled that the hot September CPI at 3.7 percent year-on-year did not change his overall view. The market interpreted this as a sign that the October meeting will most likely see no changes, and that the rate question shifts to December, which gives the euro room to recover. Now about 10-year bonds and spreads, because here the situation looks like a breather, not a reversal. The US 10-year yield has pulled back from peaks above 5.3 percent to 5.07–5.09 percent, and that gave the dollar a respite, allowing the euro to bounce off lows. However, ING analysts warn that this is a short-term phenomenon, and they expect yields to return to the 5.25–5.5 percent range, as high inflation and the budget deficit haven't gone away. This means the fundamental pressure on the euro from yields remains, and the current decline in yields may be temporary, so the euro bounce could be short-lived. On spreads the picture has slightly improved: French OATs have pulled back to 4.78 percent, and the spread with German Bunds has narrowed to 136–137 basis points. That's still very wide, at levels seen during the 2011 debt crisis, but the movement is in the right direction, and that gives some hope. The problem is that France's budget package was rejected by the finance committee, and Monday's vote promises to be difficult, which creates uncertainty and could put pressure on the euro. It's also worth mentioning Trump, because his recent posts on Truth Social this week concern domestic politics and the election campaign, not rates. He shared a long post by a Black commentator criticizing the Democrats to try to attract African American votes ahead of the midterm elections. He also posted a video and an AI clip of a tiger attack at a UK zoo, which drew criticism but is unrelated to markets. The only thing tangentially related to markets is that Trump again criticized Ukraine's strikes on Russian oil refineries, saying they are pushing up diesel and oil prices. That's more of an energy factor than a monetary one, but it’s worth keeping in mind because energy affects inflation and thus rate expectations. Now to the levels, because this is where the picture is most interesting. The logic of the levels fully matches the current picture, and the pair closed the week around 1.1238, which really is a balance zone. If price breaks 1.12524, that would mean the bounce off 1.1112, which was the October 14 low, has continued. The nearest resistance in that case is at 1.1286, the October 2 high, then 1.1337, the October 1 high. Standard Chartered has already said it is opening a long position in the euro, expecting the rebound to continue amid dollar weakness, and this supports the bullish scenario. If bears push the pair below 1.12263, that will be a signal that the bounce has run out of steam, and then targets of 1.11613–1.11125 look logical. The October 14 low was 1.1113, and a retest of that level is quite possible if US yields move higher again. ING explicitly says it sees 1.11 as key support and recommends selling rallies while French fiscal uncertainty persists. In summary, the pair’s bounce is a story about dollar weakness, not euro strength. Warsh gave the market a pause, yields pulled back, and that was enough to move toward 1.1240. But the euro’s structural problems, like France and energy, haven’t gone away, and US yields will most likely return to 5.25 percent and higher. Levels are a perfect filter for making decisions: a break of 1.12524 will confirm the correction is continuing, while a move below 1.12263 will refocus attention on the lows. The nearest triggers are France's budget vote on Monday and US yields dynamics at the start of the week. Good luck and profitable trades.