What to Know

  • Kevin Warsh declined to preview the October 27 and 28 meeting, keeping traders focused on data rather than fresh policy guidance.
  • The dollar weakened even after September CPI rose 3.7% from the previous year, core inflation stood at 2.6% and headline PPI increased 6.3%.
  • Traders priced about a 30% chance of an October hike as the Fed prepared to enter its blackout period on Saturday.
  • The US Dollar Index traded near 101.81, with chart watchers noting a bearish lean below a broken rising trendline and both key moving averages.
  • A DXY close below 101.60 could expose 101.34 and 101.03, while a recovery above 102.26 would challenge the bearish setup.
  • EUR/USD traded near 1.1238, holding a bullish bias above 1.1201 as eurozone inflation reached a three year high of 3.8%.
  • A EUR/USD break above 1.1277 could expose 1.1312, while a close below 1.1201 would put the breakout in doubt.
  • GBP/USD held near 1.3312 after breaking above 1.3268, supported by stronger UK GDP data, though RSI signaled overbought conditions.
  • A GBP/USD close above 1.3322 could open 1.3349 and 1.3373, while a move below 1.3235 would invalidate the breakout.

Dollar Softens as Warsh Leaves October Open

The US dollar started Friday on the defensive as traders digested comments from Kevin Warsh in Bangkok. Warsh said he does not preview rate decisions and noted that the September hike removed a dose of policy accommodation. Crucially for currency markets, he offered no direct signal on the October 27 and 28 meeting, leaving the dollar without the fresh hawkish impulse that some traders may have wanted.

The reaction was notable because recent inflation data still showed pressure in the US economy. September CPI increased 3.7% from the previous year, slightly above estimates, while core inflation stood at 2.6%. Headline PPI rose 6.3%, adding to the argument that price pressure has not disappeared. Even so, traders were pricing only about a 30% chance of a hike in October, suggesting that markets remain unconvinced the Fed will move again immediately.

The timing also matters. The Fed enters its blackout period on Saturday, limiting the scope for officials to reshape expectations before the next meeting. With policy speakers becoming less available, traders may place more weight on technical levels, incoming data and broader risk appetite. That leaves the dollar vulnerable to follow through selling if support fails, but still capable of a rebound if markets reconsider the inflation backdrop.

DXY Technical Outlook: 101.60 Becomes the Line to Watch

The US Dollar Index traded around 101.81 on the 1 hour chart, testing the lower edge of the 101.80 support zone. Technical traders noted that DXY has broken below its rising trendline after a sharp advance to 102.94 was rejected. The index has also slipped below both the 200 and 50 moving averages, with those averages rolling over, reinforcing the view that short term momentum has weakened.

The first important support area is 101.80. If price breaks that level, market participants may look toward 101.60, then 101.34 and 101.03. A close below 101.60 would strengthen the bear case because it would suggest that sellers are not merely probing support but taking control beneath a key near term floor.

Resistance is clustered above current price. The 101.95 area is the first important barrier, partly because the moving averages converge near the broken trendline. Above that, 102.26 and 102.60 become the next levels to monitor. In this setup, 102.26 is widely viewed as a bearish invalidation level, because a move above it would reduce the significance of the breakdown and could encourage dollar bulls to re enter.

RSI stood at 35, leaving momentum weak but not necessarily exhausted. That reading supports a cautious bearish stance while DXY remains below the rising trendline and below both the 50 and 200 hour moving averages. For now, the dollar is technically fragile, but the forecast remains conditional. A confirmed breakdown below 101.60 would give sellers a clearer path, while a push back through 102.26 would change the tone.

Euro Balances Inflation Support and Fiscal Risk

EUR/USD traded near 1.1238 as the euro benefited from dollar weakness and firm inflation data. Eurozone inflation reached a three year high of 3.8% in preliminary September figures, keeping pressure on the European Central Bank. Energy prices rose 18.8% from last year, underscoring why inflation remains a sensitive issue for policymakers and investors.

At the same time, the euro faces a more complicated backdrop because bond market stress has not fully faded. Italy’s bond yields touched 4.7% this month, up more than 100 basis points this year. Germany’s bund yields have been hovering around their highest levels since 2009, and the spread between Germany’s and Italy’s 10 year bond yields reached its widest level in almost 18 months at around 105 basis points. Those fiscal concerns can limit euro upside when investors become more cautious about regional debt dynamics.

Policy expectations remain central. A Reuters poll showed expectations that the ECB will hold its deposit rate at 2.50% in October and raise it by 25 basis points in December. Citi noted that fiscal constraints in France could mean the ECB holds after December or raises rates even less, depending on how conditions evolve. That keeps the euro supported by inflation pressure but restrained by uncertainty over how far policymakers can go.

EUR/USD Technical Outlook: Bulls Defend the Breakout Zone

On the 1 hour chart, EUR/USD was around 1.1238 after a strong recovery from 1.1113. The pair has built higher lows along rising trendline support and has moved above the 1.1201 to 1.1221 resistance zone. Price is also above both moving averages, which suggests that buyers have control in the near term.

The first serious resistance is 1.1277, the high from earlier in the month. A move above that level would confirm and add to the upside recovery, potentially exposing 1.1312. Until that happens, traders may treat the advance as constructive but not fully confirmed.

Support begins at 1.1221, followed by 1.1201 and the rising trendline. Below that area, 1.1153 and 1.1113 come back into play. A close below 1.1201 would call the breakout into question because it would put price back under the level that has helped define the bullish bias.

RSI was near 64 and above its signal line at 59. That places EUR/USD in positive territory without showing the same degree of overbought pressure seen in sterling. As long as EUR/USD holds above 1.1201, technical traders may continue to favor the upside, with 1.1277 as the confirmation point.

Sterling Finds Support From UK Growth Data

GBP/USD traded near 1.3312 and continued to hold above its 1.3268 breakout zone. Sterling gained support after UK GDP surprised to the upside in August. The economy grew 0.1% month on month and expanded 0.7% in the three months to August, strengthening expectations that the Bank of England may need to continue tightening policy.

A recent poll of 63 economists showed that 54 expect Bank Rate to rise to 4.00% in November. That expectation has helped sterling maintain a firmer tone against the dollar, especially as US rate expectations remain uncertain. October also brings UK inflation data and the Autumn Budget, both of which may influence the next leg in GBP/USD.

The sterling story is not one directional, however. Stronger growth can support a currency when it raises rate expectations, but it can also heighten scrutiny of inflation, household pressures and fiscal choices. Traders are therefore watching whether the pound can maintain technical support while incoming UK data either validates or challenges expectations for further Bank of England action.

GBP/USD Technical Outlook: Breakout Holds but RSI Warns of Heat

GBP/USD has broken cleanly above resistance at 1.3268, an area that capped price for several days. The move placed the pair above both moving averages, while the 1.3135 low marks the origin of the latest upward trend. Price has been testing 1.3322, but the latest candle on the H4 chart left an upper wick in that area, suggesting sellers have not fully stepped aside.

The first resistance level is 1.3322. A close above that area would make the trend even more bullish and could expose 1.3349. A break above 1.3349 would then put 1.3373 in focus. Those levels define the next upside checkpoints for traders who are following the breakout.

Support sits at the 1.3268 breakout zone. Below that, 1.3235 and 1.3203 are the next areas to watch. A close below 1.3235 would invalidate the breakout above 1.3268, making that level especially important for risk management.

RSI stood at 72, above the signal line at 66, indicating overbought conditions. That does not automatically end the bullish structure, but it does raise the risk of a pullback toward 1.3268 before another attempt higher. For now, sterling remains technically constructive, but momentum traders may want confirmation above 1.3322 before assuming the next upside extension is underway.

Market Takeaway

The dollar’s weakness reflects a market that is not yet convinced the Fed will deliver another immediate hike, even with inflation figures still firm. Warsh’s refusal to preview the October 27 and 28 meeting kept the policy outlook open rather than decisively hawkish. That has allowed EUR/USD and GBP/USD to benefit, though both pairs still face important resistance levels.

For DXY, 101.60 is the key downside trigger and 102.26 is the level that would challenge the bearish view. For EUR/USD, the bullish case depends on holding 1.1201 and clearing 1.1277. For GBP/USD, the breakout remains valid above 1.3235, while 1.3322 is the immediate ceiling. FXCOINZ sees the next move as highly dependent on whether traders treat recent inflation data as enough to revive dollar demand or whether technical breakdown signals continue to drive near term positioning.

Frequently Asked Questions (FAQs)

Why did the US dollar weaken after Warsh’s comments?

The dollar weakened because Kevin Warsh declined to preview the October 27 and 28 meeting and did not provide a fresh hawkish signal. Traders were already pricing only about a 30% chance of an October hike, so the lack of guidance left the dollar exposed.

What is the key support level for DXY?

The first important support area is 101.80, followed by 101.60. A close below 101.60 would strengthen the bearish case and could expose 101.34 and 101.03.

What level would invalidate the bearish DXY setup?

A move above 102.26 would challenge the bearish setup. That level is important because it would indicate that the dollar has recovered above a key resistance area after breaking below its trendline and moving averages.

Why is EUR/USD showing a bullish bias?

EUR/USD is holding above the 1.1201 to 1.1221 breakout zone and is trading above both moving averages. Eurozone inflation at 3.8% also keeps attention on potential ECB policy pressure.

What is the main resistance for EUR/USD?

The first major resistance level for EUR/USD is 1.1277. A break above that level could confirm the upside recovery and expose 1.1312.

Why is GBP/USD supported?

GBP/USD is supported by a clean break above 1.3268 and stronger UK GDP data. UK GDP grew 0.1% month on month in August and 0.7% in the three months to August, strengthening expectations for further Bank of England tightening.

Is GBP/USD overbought?

RSI for GBP/USD stood at 72, above the signal line at 66, which indicates overbought conditions. That suggests a pullback toward 1.3268 is possible even though the broader technical structure remains bullish.

What would invalidate the GBP/USD breakout?

A close below 1.3235 would invalidate the breakout above 1.3268. Until then, traders may continue to view the pair as constructive, especially if price can close above 1.3322.