On Wednesday, the euro-dollar pair tested the upper boundary of the range 1.1530–1.1590 again, which corresponds to the middle line of the Bollinger Bands indicator on the daily chart. Overcoming this target will open the way to the next resistance levels – 1.1650 (the lower boundary of the Kumo cloud on D1) and 1.1700 (the upper line of the Bollinger Bands on the same timeframe). However, for EUR/USD buyers, this is by no means an easy task; for instance, the previous day's attempt failed. Tuesday's high was 1.1606, while the day closed at 1.1583.
In other words, despite the prevailing bullish sentiment for the pair, traders remain cautious. As soon as the price crosses the middle line of the Bollinger Bands on D1, buyers take profits, and the bullish momentum gradually wanes.
This situation is partly due to the current week's economic calendar being practically empty for the EUR/USD pair. Among the relatively significant releases, we highlight the ZEW indices released on Tuesday. Additionally, some volatility may be provoked by data on European economic growth (the second estimate of GDP growth for Q3), which will be published on Friday, November 14. Other reports are of even lesser importance.
Thus, all traders' attention is currently focused on the shutdown saga and the rhetoric of Federal Reserve representatives.
Let's begin with the aforementioned ZEW indices. Almost all components of the report came in the "red zone," putting background pressure on the euro. For example, the business sentiment index for Germany dropped to 38.5, while most analysts had forecasted an increase to 40.0. This indicator had shown upward momentum for two consecutive months, and November was expected to be the third month in this row, but it unexpectedly slowed. The current situation index from the ZEW institute also landed in the red zone: instead of the expected "growth" to-- -77.5, it came in at -78.7 (after decreasing to -80). However, the overall European business sentiment index exceeded expectations, rising to 25.0 from a forecast of 23.5.
In general, there are no sensational results. The overall outcome is roughly the same as last month. Despite the slight decline, the expectations index in Germany remains at +38.5, indicating moderate optimism. There are no panic or pessimistic sentiments, more so, a "cautious waiting." In turn, the improvement in the assessment of the current situation (from -80 to -78.7) indicates that current conditions are tough but not worsening, and may even be improving slightly. Meanwhile, optimistic expectations are growing in the Eurozone, suggesting that business sentiment in European regions outside Germany is improving.
In other words, despite the somewhat contradictory results of the November ZEW indices, they suggest that sentiments in the European business environment remain positive. However, due to their contradictory nature, the report did not assist either the EUR/USD bears or bulls.
Fed representatives also did not help traders of the pair to determine their directional bias. For instance, San Francisco Fed President Mary Daly, who does not have a vote this year, stated recently that the central bank should "remain open to further rate cuts." According to her, the balance of risks has shifted, as the US labor market has "significantly weakened." She noted that the slowdown in job growth is not due to supply constraints from immigration policy but to a decline in labor demand.
St. Louis Fed President Alberto Musalem (who does have a vote this year) pointed to rising inflationary risks. He emphasized that the labor market is at full employment, "though it has significantly weakened recently."
Last week, three members of the Board of Governors (Michael Barr, Christopher Waller, and Stephen Miran) advocated additional monetary policy easing by the end of the year, citing concerns about the state of the US labor market. However, some Fed representatives continue to focus on inflation risks, urging a more wait-and-see approach.
According to CME FedWatch data, the probability of a Fed rate cut at the December meeting is currently 63%. This means the market allows for this option but still harbors doubts. The contradictory signals from the central bank's members leave more questions than answers. Therefore, the market is waiting for the shutdown to end, after which key labor market data – the Non-Farm Payrolls – will be published. This explains the cautious behavior of EUR/USD traders.
It should be noted that the shutdown may conclude as early as this week. As is known, the Senate has supported a compromise bill to fund the budget through January 31 and has sent the bill to the House of Representatives. If the House supports this bill (the vote is expected today, November 12), only President Donald Trump's signature will be needed. If this scenario plays out, the September Non-Farm Payrolls will be published next week.
There is not much longer to wait, which is why traders are reluctant to open large positions ahead of significant events.
Given the established fundamental background, it can be assumed that the pair will continue to fluctuate within the 1.1530–1.1590 price range in the medium term.
