EUR/USD holds steady amid tense external backdrop

The EUR/USD pair held its ground around 1.1726 on Friday. While volatility in the currency market has picked up significantly, the immediate economic impact of the US government shutdown remains limited. Nonetheless, the political deadlock is fuelling broader concerns over policy uncertainty, persistent inflation risks, and a weakening US labour market.

Adding to the tense atmosphere, Finance Minister Scott Bessent warned on Thursday that the funding suspension could negatively impact GDP growth. Simultaneously, President Donald Trump threatened deep cuts to federal agencies in a bid to pressure Democratic opponents.

On the monetary policy front, Dallas Fed President Lorie Logan characterised the September rate cut as a justified step to shield the labour market from a sharper slowdown. However, she noted that the economic deceleration is gradual and does not yet warrant urgent further action.

Despite this cautious tone, market pricing indicates a near-certain probability of a 25 bps rate cut this month, with a second cut fully priced in by December.

Technical analysis: EUR/USD

H4 Chart:

On the H4 chart, EUR/USD formed a consolidation range around 1.1740, which has since expanded downward to 1.1685. We now anticipate a move higher towards 1.1740, followed by a decline to 1.1707. A decisive upside breakout could propel the pair towards 1.1786, while a break below the current range would open the path for a continued downtrend towards 1.1625 and potentially lower. This bearish-leaning scenario is technically supported by the MACD indicator, with its signal line positioned below zero and pointing firmly downward.

H1 Chart:

The H1 chart shows the pair completed a downward wave to 1.1683 and a subsequent correction to 1.1728. We now expect a further decline to 1.1670. A break below this level would activate the potential for a downward wave targeting 1.1625. A breach of this latter level could then initiate a third wave of selling towards 1.1470. The Stochastic oscillator aligns with this view, as its signal line is above 80 and turning sharply downward towards 20.

Conclusion

EUR/USD is currently stabilising, but remains highly sensitive to the twin forces of US political instability and shifting Fed policy expectations. The overall technical structure retains a bearish bias, suggesting that any near-term stability is fragile and likely to give way to further declines unless fundamental drivers shift significantly.