What to Know

  • Kevin Warsh declined to preview the October 27-28 Federal Reserve meeting, leaving markets without a fresh policy signal before the blackout period.
  • The US Dollar Index traded near 101.81 after weakening despite September CPI at 3.7%, core inflation at 2.6%, and headline PPI at 6.3%.
  • Traders priced about a 30% chance of an October rate hike, keeping the dollar vulnerable to shifting rate expectations.
  • DXY remains technically soft below its broken rising trendline and below both the 50 and 200 hour moving averages.
  • A close below 101.60 could expose 101.34 and 101.03, while a recovery above 102.26 would weaken the bearish setup.
  • EUR/USD traded near 1.1238 with a bullish bias above 1.1201, supported by eurozone inflation at 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 clearing the 1.3268 breakout zone, helped by stronger UK growth figures.
  • 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 Fed Guidance Stays Limited

The US dollar moved lower as traders received no fresh signal on whether the Federal Reserve is preparing another near-term policy move. Kevin Warsh said in Bangkok that he does not preview rate decisions, and his comments left the October 27-28 meeting open rather than providing a directional steer. That restraint mattered because markets had been looking for clarity after the September hike removed a dose of policy accommodation.

The dollar’s weakness came even though recent US inflation figures remained firm. September CPI increased 3.7% from the previous year, slightly above estimates, while core inflation stood at 2.6% and headline PPI rose 6.3%. In a normal setting, persistent inflation can support a currency by keeping rate-hike expectations alive. In this case, however, the market reaction suggested that traders wanted a clearer policy endorsement before rebuilding dollar exposure.

With traders pricing only about a 30% chance of an October hike, the dollar entered a sensitive phase. The Federal Reserve blackout period beginning Saturday further limits the scope for officials to shape expectations. That leaves incoming data, positioning and technical levels to carry more influence in the short run. For DXY, the key question is whether the recent breakdown develops into a broader pullback or whether buyers defend support before the index loses additional ground.

DXY Technical Outlook: 101.60 Becomes the Pivot

The US Dollar Index traded near 101.81 on the 1 hour chart, testing the lower edge of the 101.80 support zone. The technical backdrop has shifted after DXY broke below its rising trendline. The index also fell below both the 50 and 200 hour moving averages, and those averages are rolling over, which gives the chart a slight bearish lean.

Technical traders are watching 101.80 as the first important support area. If that zone gives way, the next levels in focus are 101.60, 101.34 and 101.03. A close below 101.60 would strengthen the bear case because it would show that sellers are not merely testing support but gaining control below a more meaningful threshold.

Resistance is clustered overhead. The 101.95 area is the first important barrier, partly because the moving averages converge near the broken trendline around that level. If DXY recovers, the next levels are 102.26 and 102.60. Market participants are treating 102.26 as a bearish invalidation area, meaning a sustained move above it would challenge the view that the recent breakdown remains dominant.

Momentum readings also support caution. RSI was near 35, showing that the index is under pressure but not necessarily at an extreme. That leaves room for further downside if support fails, but it also means short-term rebounds are possible if sellers hesitate around 101.80 or 101.60. For now, some chart watchers remain somewhat bearish while DXY trades below the broken rising trendline and below the 50 and 200 hour moving averages.

Euro Balances Inflation Pressure and Fiscal Risk

EUR/USD traded around 1.1238, holding a constructive tone after recovering from 1.1113. The pair moved above the 1.1201 to 1.1221 resistance zone and is trading above both moving averages, suggesting that buyers currently have the upper hand. Rising trendline support and a pattern of higher lows add to the bullish technical structure.

The euro’s fundamental backdrop is mixed. Eurozone inflation reached a three-year high of 3.8% in September, based on preliminary Eurostat figures. Energy prices rose 18.8% from last year, keeping inflation pressure central to the European Central Bank outlook. Further September figures are set to refine the picture, but the inflation backdrop has already reinforced expectations that policy may need to stay restrictive.

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. However, the region’s fiscal challenges complicate the outlook. Italy’s bond yields touched 4.7% this month, up more than 100 basis points this year. Germany’s bund yields have hovered around their highest levels since 2009, while the spread between Germany’s and Italy’s 10-year bond yields reached around 105 basis points, the widest in almost 18 months.

Fiscal constraints in France have also become part of the policy debate, with some market participants seeing scope for the ECB to hold after December or raise rates less, depending on how conditions evolve. That means the euro’s advance is not purely a story of inflation support. It is also vulnerable to bond-market stress and concerns about how far the ECB can tighten without worsening fiscal pressure across the region.

EUR/USD Technical Outlook: 1.1277 in Focus

For EUR/USD, 1.1277 is the first major upside level watched by technical traders. This level marks the high from earlier in the month and is viewed as a confirmation point for the recovery. A break above 1.1277 could expose 1.1312 and strengthen the view that the pair has regained bullish momentum.

Support begins at 1.1221, followed by 1.1201 and the rising trendline. The 1.1201 level is especially important because it sits at the lower boundary of the breakout zone. If EUR/USD closes back below 1.1201, the breakout would come into question and the pair could refocus on 1.1153 and 1.1113.

RSI was near 64 and above its signal line at 59. That places EUR/USD in positive territory without indicating the same degree of overbought pressure seen in sterling. As long as the pair holds above 1.1201, the near-term bias remains constructive. A decisive push above 1.1277 would add to the upside recovery, while a close below 1.1201 would shift attention back to downside risk.

Sterling Supported by UK Growth Surprise

GBP/USD remained firm near 1.3312 after breaking above the 1.3268 resistance zone. The pound drew support from UK GDP data showing month on month growth of 0.1% in August and growth of 0.7% in the three months to August. The figures strengthened expectations for additional Bank of England tightening.

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 stronger tone, especially as traders prepare for UK inflation data and the Autumn Budget. The pound’s advantage is not risk free, however. If inflation cools or fiscal signals reduce confidence, expectations for further tightening could soften.

On the chart, GBP/USD has held above the 1.3268 breakout zone, an area that capped price for several days before giving way. The 1.3135 low marks where the upward trend began, and price remains above both moving averages. That keeps the bullish structure intact, although momentum is becoming stretched.

GBP/USD Technical Outlook: Breakout Holds, but RSI Warns

The first resistance for GBP/USD is 1.3322, where the latest candle on the H4 chart left an upper wick. A close above 1.3322 would make the trend even more bullish and could expose 1.3349. A move above 1.3349 would then bring 1.3373 into focus as the next resistance area.

Support starts at the 1.3268 breakout zone. If that level fails, traders would watch 1.3235 and 1.3203. A close below 1.3235 would invalidate the breakout above 1.3268 and suggest that the recent sterling advance has lost technical credibility.

RSI was at 72 and above the signal line at 66, placing the pair in overbought territory. That does not automatically end the uptrend, but it does warn that momentum is stretched. Some chart watchers are therefore looking for a pullback toward 1.3268 before assessing whether buyers step back in. If the pair holds that area, the breakout remains intact. If it fails, the bullish case would weaken quickly.

Market Outlook: Dollar Direction Hinges on Support and Policy Expectations

The near-term outlook for the dollar, euro and pound is being shaped by the interaction between central bank expectations and technical confirmation. DXY has weakened because traders did not receive an October signal from Kevin Warsh, despite firm inflation figures. EUR/USD has benefited from a weaker dollar and elevated eurozone inflation, while GBP/USD has drawn support from stronger UK growth and expectations for a Bank of England move.

The key risk is that all three setups remain conditional. DXY needs to stay below its broken trendline and moving averages for sellers to maintain control. EUR/USD needs to hold above 1.1201 to preserve its breakout. GBP/USD needs to defend 1.3268 and avoid a close below 1.3235. Until those conditions change, FXCOINZ views the dollar as vulnerable, the euro as constructively positioned above support, and sterling as bullish but increasingly stretched.

Frequently Asked Questions (FAQs)

Why did the US dollar weaken?

The US dollar weakened after Kevin Warsh declined to preview the October 27-28 Federal Reserve meeting, leaving traders without a clear signal on the next policy move despite firm inflation data.

What is the key level for the US Dollar Index?

The key downside level is 101.60. A close below that level could strengthen the bearish case and expose 101.34 and 101.03, while a move above 102.26 would challenge the bearish setup.

How high was September US CPI?

September CPI increased 3.7% from the previous year, slightly above estimates. Core inflation stood at 2.6%, while headline PPI rose 6.3%.

What is the market pricing for an October Fed hike?

Traders priced about a 30% chance of an October hike, which suggests markets remain cautious about expecting another immediate move from the Federal Reserve.

Why is EUR/USD holding a bullish bias?

EUR/USD is holding a bullish bias because it trades above the 1.1201 to 1.1221 breakout zone, remains above both moving averages, and has developed higher lows from 1.1113.

What EUR/USD level matters most now?

The 1.1277 level is the first major resistance for EUR/USD. A break above it could expose 1.1312, while a close below 1.1201 would put the breakout in doubt.

What is supporting GBP/USD?

GBP/USD is supported by a break above 1.3268 and by UK GDP figures showing 0.1% month on month growth in August and 0.7% growth in the three months to August.

Is GBP/USD overbought?

RSI at 72 and above its signal line at 66 indicates that GBP/USD is in overbought territory, so some traders may watch for a pullback toward the 1.3268 breakout zone.

What would invalidate the GBP/USD breakout?

A close below 1.3235 would invalidate the breakout above 1.3268 and weaken the bullish technical outlook for GBP/USD.