EUR/USD steadies above $1.16 as dollar weakens amid trade tensions and shutdown

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Euro steadies dollar weakens

Highlights

- EUR/USD trades near 1.162 as the euro benefits from a weaker U.S. dollar.

- The pair holds support between 1.158 and 1.160, defending the 50-day moving average.

- Trade tensions and the U.S. shutdown continue to undermine dollar sentiment.

The latest downturn in the U.S. dollar stems from two overlapping headwinds. President Trump’s announcement of 100% tariffs on Chinese imports reignited fears of an extended trade war, triggering volatility across global markets and adding pressure to the greenback. Meanwhile, the ongoing U.S. government shutdown has intensified investor anxiety as federal workers miss paychecks and fiscal uncertainty grows.

Together, these developments have created a cautious backdrop that limits appetite for dollar-denominated assets. Analysts suggest that prolonged policy deadlock could weigh further on growth expectations, particularly if consumer spending softens in the coming weeks. This has provided a short-term advantage to the euro, which remains supported by relative political stability and the European Central Bank’s steady policy stance.

Euro finds footing amid easing political tensions

Across Europe, sentiment turned slightly more positive after weeks of unease. Political concerns in France eased as President Macron confirmed his plan to appoint a new prime minister, lowering the likelihood of early elections. The European Central Bank’s latest meeting accounts also indicated that policymakers view current rates as sufficiently restrictive to keep inflation under control, reducing speculation about near-term changes in monetary policy.

This combination of political calm and policy clarity has helped the euro consolidate its recent gains. The pair’s ability to hold above 1.16 underscores investor confidence that the currency can withstand external shocks as long as Europe avoids deeper political disruption.

Technical setup favors cautious optimism

From a technical standpoint, EUR/USD continues to defend a key support zone between 1.158 and 1.16, an area reinforced by the 50-day moving average that has consistently served as a floor in recent weeks. A sustained close above this level would strengthen the case for further recovery, with resistance seen at 1.167 and 1.172. A breakout beyond these levels could open the path toward the 200-day moving average near 1.1785.

EUR/USD price dynamics (Source: TradingView)

Momentum indicators suggest a period of consolidation, with the daily RSI holding just above neutral and the Parabolic SAR shifting below price action, signaling the potential for continued stabilization. However, a decisive close below 1.158 would likely invite renewed selling, exposing the 1.15 psychological level and possibly the July lows.

EUR/USD short-term outlook

In the near term, the 1.16 threshold remains the key battleground for direction. Holding this area could support a gradual recovery toward 1.167 and 1.172, while a failure to maintain it would increase the risk of another retreat toward 1.15.

Previously, we discussed how EUR/USD’s recovery attempts have often coincided with phases of U.S. dollar weakness driven by policy uncertainty and risk aversion. The current environment mirrors that pattern, as investors once again seek refuge from domestic instability. As long as European politics remain steady and U.S. fiscal tensions persist, the euro is likely to retain a modest advantage in the short term.

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