US Government "shutdown" and potential for a new 100% tariffs on imports from China were the main topics on financial markets during the previous week. Due to a "shutdown" there are still some important US macro data pending the release. University of Michigan Consumer Sentiment preliminary for October was released, reaching the level of 55, a bit higher from expected 54,2. Inflation expectations within the next five years period are standing at 3,7%, unchanged from the previous release. Inflation expectations for this year stand at 4,6%, a bit lower from 4,7% posted previously. The FOMC meeting minutes has been released, revealing a divided but overall supportive stance on the recent 25 bps rate cut, with some members pushing for a larger cut amid signs of a cooling labor market and easing inflation risks. However, others remained cautious, warning that inflation is still above target and could reaccelerate. The Committee emphasized a data-dependent approach going forward, favoring gradual, measured cuts rather than a rapid easing cycle. Overall, the Fed is balancing weaker growth signals against lingering inflation concerns, keeping policy uncertainty elevated.
Retail Sales in the Euro Zone were higher by 0,1% in August, bringing the indicator to 1% increase on a yearly basis. Data were a bit lower from anticipated 0,2% m/m and 2,0% y/y. The Industrial production in Germany in August dropped by -4,3%, which was significantly higher from forecasted -0,8%. The Balance of Trade in Germany in August reached euro 17,2B, higher from expected euro 16,1B.
Markets favoured the US Dollar during the previous week, where the currency pair made a further move toward the downside. The week started around the level of 1,1740, and for the rest of the week was following the down path. The lowest level reached was 1,1550, but the eurusd is ending the week at 1,1620. The RSI reached the level of 35, however, a clear oversold market side has not been reached on this occasion. The MA50 continues to slow divergence from MA200, while due to the higher distance between the two lines, the cross is still not in plan.
The support level at 1,16 has been tested during the previous week and sustained selling pressure. On a fundamental side, there is still a lack of official important macro data for the US economy, especially when jobs are in question. It is unclear when the US government will start to operate under "normal" circumstances, and when this data will be released. Based on the outcome, some higher market volatility might be shortly imposed. On the other hand, there is also a question of a market reaction to the new tariffs-war between the US and China, which emerged on Friday. It seems that the lack of official macro data would impact market reaction based on fundamentals during the week ahead. In this sense some correction to the upside is possible from Monday. In this sense, a short term resistance at 1,17 could be tested. It is questionable whether the market will continue toward the 1,18 resistance. On the opposite side, a further demand for the US Dollar might drag the currency pair down to 1,14, which was the lowest level reached by the end of July this year. Current charts are pointing to this level, but it is unclear whether it will be reached during the week ahead or within two or three weeks ahead.
Important news to watch during the week ahead are:
EUR: Wholesale Prices in Germany in September, ZEW Economic Sentiment Index in Germany in October, Industrial Production in the Euro Zone in August, Balance of Trade in the Euro Zone in August, Inflation rate in the Euro Zone in September,
USD: Fed Chair Powell speech, Industrial Production in September. Due to Government "shutdown" it is unclear whether and when other US economic indicators will be published.