EUR/USD Tests 1.1600 as Political Turmoil and Fed Uncertainty Drive Volatility
The EUR/USD exchange rate has been locked around the 1.1600 level, unable to find clear direction as traders weigh simultaneous shocks from Europe and the United States. On Wednesday, the pair slipped to 1.1590, nearly 1% lower intraday, pressured by a firm U.S. Dollar Index above 98.50. Yet the greenback’s resilience masks a fragile backdrop, with President Trump’s dismissal of Fed Governor Lisa Cook still rattling investor confidence in the central bank’s independence. Powell’s Jackson Hole remarks reinforced that “conditions may warrant” a rate cut, and futures markets now price an 87% chance of a 25bps cut in September, up from 84% earlier in the week. This push and pull between political risk and monetary easing expectations leaves EUR/USD struggling for a breakout in either direction.
French Confidence Vote and Eurozone Fragility Weigh on the Euro
Euro sentiment deteriorated further after French Prime Minister François Bayrou tied his €44 billion budget plan to a confidence vote set for September 8, triggering fears of government collapse. French bonds sold off sharply, and the CAC 40 index dropped 1.7%, underlining how political instability in Europe’s second-largest economy is weighing on the euro. German data added to the pressure: the GfK Consumer Climate index fell to –23.6, missing expectations and marking a third consecutive monthly decline. Weakening income expectations and job insecurity drove the drop, reinforcing the view that the Eurozone’s largest economy is far from recovery. Together, these developments kept EUR/USD pinned under the 1.1620–1.1650 zone, an area that has repeatedly capped rallies.
Technical Structure Shows Bears in Control for EUR/USD
The technical picture for EUR/USD remains tilted to the downside. Price action decisively broke below consolidation support around 1.1620–1.1624, sliding toward 1.1605 where a take-profit target aligned perfectly with prior projections. Analysts highlight the significance of the rejection at 1.16243, which triggered a textbook run lower to 1.16050. Current momentum keeps the pair vulnerable, with next targets seen at 1.1580 and 1.1550, and stronger support building at 1.1500–1.1470. Daily indicators confirm the weakness: the 14-day RSI sits at 47, showing room for more downside before reaching oversold conditions, while the MACD lines remain tilted lower. On the 4-hour frame, EUR/USD has not only breached an imbalance fair value gap but also rejected attempts to reclaim prior consolidation, a structure that often precedes extended declines.
Dollar’s Shifts Tied to Fed Drama and Inflation Outlook
The U.S. dollar has been swinging on political risk tied to Trump’s clash with the Fed, but it still finds fundamental support from data and policy. Inflation stood at 2.7% year over year in July, above the Fed’s target, while jobless claims and the PCE inflation release later this week remain critical for market expectations. If inflation proves sticky, the Fed may hesitate to cut, reinforcing dollar strength. However, if Powell pushes ahead with easing, the greenback could weaken, offering the euro a relief rally. For now, investors prefer the dollar as a safer play against Eurozone political instability, giving the DXY an edge even as U.S. governance turmoil lingers.
EUR/USD Faces Double Top Risk and Market Structure Breakdown
Traders remain wary of a double top formation near 1.18 that has repeatedly rejected bullish advances. Each failure near that zone has been followed by heavier selling pressure, with the most recent breakdown sending the pair back under 1.16. Analysts stress that unless EUR/USD breaks firmly above 1.1700–1.1770, rallies remain suspect and vulnerable to renewed selling. The downside risk is clear: below 1.1550, the pair targets 1.1400, which represents a psychological and structural support zone that has held in prior crises. Anything beneath 1.14 would deepen bearish sentiment and could trigger a broader revaluation of the euro’s fundamentals.
Investor Positioning and Trading Scenarios for EUR/USD
Current trading signals show both sides of the market engaged. Buy orders have clustered near 1.1520, with targets at 1.1800 and stops under 1.1460. Meanwhile, sellers are defending 1.1700, targeting 1.1500 with stops above 1.1770. This split reflects the uncertainty in the macro backdrop. On one hand, Fed cuts and U.S. political instability provide a bullish setup for EUR/USD; on the other, French instability, German weakness, and strong technical rejection points continue to weigh on the euro. In the absence of major Eurozone data until Friday’s inflation release, sentiment remains the main driver, leaving the currency pair highly sensitive to headlines.
Verdict on EUR/USD: Sell Bias Holds Until 1.1700 Breaks
At 1.1590–1.1610, the EUR/USD exchange rate shows more downside risk than upside potential. Support levels at 1.1570–1.1500 are in sight, and momentum indicators favor sellers. Only a break above 1.1700 would weaken the bearish case and open the door to 1.1770–1.1850. With France’s political turmoil unresolved and Germany’s consumer outlook deteriorating, the euro lacks the catalysts for a sustained rally. Meanwhile, the U.S. dollar benefits from relative stability despite Trump’s Fed feud, backed by incoming data that may keep yields elevated. For traders, the setup favors continued pressure lower, making EUR/USD a Sell while below 1.1700, with risk toward 1.1500–1.1400 in the near term.
