The US Dollar extended its run, pushing EUR/USD to a fourth straight weekly fall and a low of 1.1215, last seen in May 2025, before the pair steadied near 1.1280 as DXY eased from an over one-year high. US data showed Q2 GDP revised up to 2.2% from 1.5%, while the PCE Price Index held at 3.4% in August and July was revised to 3.4% from 3.7%. ADP showed 90K private jobs in September versus 70K expected, yet Nonfarm Payrolls printed 29K against 90K expected, with August revised to 133K from 162K; unemployment rose to 4.2%, participation edged up to 61.8% from 61.6%, and Average Hourly Earnings increased 3% versus 3.2% forecast.

Rate expectations shifted after the PCE release, with the implied chance of an October 28 Fed hike dropping to about 21% from above 70% a week earlier, even as the 10-year Treasury yield touched 5.3% mid-week before easing to 5.15% after NFP. In Europe, inflation ran hotter: HICP was 3.4% YoY in France, 4.1% in Italy and 5% in Spain; Germany rose to 3.3% from 2.9%, the Eurozone rate was 3.8% with core at 2.5%, above the ECB’s 3.6% quarterly view. October ECB hike odds were put at 18% and December at 73%, with the deposit facility rate at 2.5% versus the Fed funds range of 3.75% to 4.0%; upcoming releases include US ISM services PMI, FOMC minutes, ECB accounts and Michigan expectations. Technically, EUR/USD sits below the 20-, 100- and 200-day SMAs at 1.1462, 1.1513 and 1.1609, with daily RSI at 26; weekly trade is below the 100-week SMA at 1.1360 for the first time since March 2025, with support at the 200-week SMA at 1.1096 and a potential move toward 1.1000 if it breaks.

Trading Strategy and Macro Outlook

We suggest that derivative traders look to short the EUR/USD pair on temporary rallies as the US dollar maintains its dominant run. The pair recently touched a multi-month low of 1.1215, heavily pressured by the wide interest rate gap between the Federal Reserve and the European Central Bank. This downward trend is backed by recent data showing the US Dollar Index pushing near yearly highs.

Recent macroeconomic indicators highlight why the US dollar remains the preferred safe-haven asset. The upward revision of US Q2 GDP to 2.2% and a resilient services sector contrast sharply with sluggish European growth. With the US 10-year Treasury yield hovering at a high 5.15%, we expect capital to keep flowing into dollar-denominated assets.

While the European Central Bank has raised rates twice this year, its deposit rate still sits at a low 2.5% compared to the Fed’s 3.75% to 4.0% range. Even though Eurozone inflation ticked up to 3.8%, market players see only an 18% chance of an ECB rate hike in October. We believe this interest rate disadvantage will continue to depress the Euro over the coming weeks.

Ongoing tensions in the Middle East continue to prop up global energy prices, disproportionately threatening Europe as winter approaches. High energy costs act as a heavy tax on European businesses, further weakening the economic outlook for the Eurozone. We recommend using bearish options or short futures contracts to capitalize on this fundamental divergence.

Technical Analysis and Risks

From a technical perspective, the EUR/USD pair looks heavily bearish as it trades well below its 20-day, 100-day, and 200-day moving averages. If the price breaks below the key 200-week moving average at 1.1096, it will likely trigger a rapid slide toward the 1.1000 psychological level. We should watch the upcoming FOMC minutes on Wednesday closely, as any hawkish surprises could accelerate this breakdown.