EUR/USD steadies near $1.176 as inflation strength offsets U.S. shutdown risks

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Euro steadies near $1.1760 as inflation offsets U.S. risks

Highlights

- The euro traded at $1.1760, supported by Eurozone inflation data showing prices rose 2.2% in September.

- Technical resistance remains at $1.1785, with support at $1.1735 and deeper cushion near $1.1635.

- Dollar weakened as the U.S. shutdown began, projected to cost $400 million per day in lost wages.

France and Italy posted more modest increases, but collectively the bloc’s inflation likely accelerated to 2.2 percent, its highest level since April. The reading reinforces expectations that the European Central Bank will hold rates steady at its October meeting. With inflation running above the 2 percent target, policymakers are unlikely to ease policy further in the near term, even as growth headwinds persist.

Technical levels define the battleground

On the technical front, EUR/USD continues to trade within the rising channel that has guided its advance since early August. The pair is testing resistance near $1.1785, a level that has repeatedly capped upside attempts over the past two weeks. Fibonacci retracement analysis also highlights this barrier, with the 78.6 percent retracement of July’s decline aligning at similar levels.

EUR/USD price analysis (Source: TradingView)

Support sits at $1.1735, where the 20- and 50-period exponential moving averages converge. A breakdown below this level could invite a move toward $1.1635, the 61.8 percent retracement, while holding above would keep the short-term uptrend intact. Momentum indicators show tentative bullish alignment but limited follow-through, underlining the importance of a decisive breakout above resistance.

U.S. shutdown clouds dollar outlook

Macroeconomic drivers remain equally influential. The United States entered its first government shutdown in seven years after lawmakers failed to pass a funding deal. According to the Congressional Budget Office, the furlough of 750,000 federal employees could cost $400 million per day in lost wages. The shutdown has already suspended the release of the September nonfarm payrolls report, leaving markets reliant on alternative indicators such as the ADP employment release.

The dollar weakened as traders weighed the fiscal uncertainty, giving the euro an additional lift. Still, headline risks from Washington remain high, with markets wary of prolonged gridlock and its potential to unsettle near-term sentiment.

Market outlook

In summary, EUR/USD is positioned at a critical juncture. A confirmed move above $1.1785 would unlock room toward $1.1850 and potentially $1.19, while repeated rejection risks keeping the pair rangebound with buyers defending the $1.17 handle. Inflation strength across the Eurozone provides a constructive backdrop, but political developments in Washington may dictate near-term direction.

Previously, we discussed the euro’s ability to hold its uptrend despite softening domestic data, with technical structure and ECB expectations reinforcing stability. The latest support from inflation strength and dollar weakness continues that narrative, though the pair’s breakout potential hinges on clearing resistance at $1.1785.

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