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Bearish Momentum May Rebuild if the Pattern Repeats
Central Bank
Economic
Summary:
This divergence suggests waning bullish strength and raises the possibility of a trend reversal.
Sell
CLOSEDEURUSD
End Time
1.16510
Entry Price
1.16100
TP
1.16700
SL
1.16825 +0.00008 +0.01%
190
Points
Loss
1.16100
TP
1.16700
CLOSING
1.16510
Entry Price
1.16700
SL
In the Eurozone, Germany’s GfK Consumer Climate Index for September fell sharply to -23.6, missing expectations of -21.5 and down from the previous reading of -21.7. This marks the third consecutive monthly decline and highlights the fragile state of household confidence in Europe’s largest economy. The report revealed a steep drop in income expectations, with concerns over potential job losses and weaker spending intentions adding to worries about the region’s uneven recovery. The deterioration in sentiment continues to weigh on the euro, reinforcing the challenges faced by policymakers as demand softens.
At the same time, political uncertainty in France is exerting additional pressure on the single currency. Prime Minister François Bayrou has tied his €44 billion budget proposal to a crucial vote of confidence in parliament, scheduled for September 8. The move has raised the risk of a government collapse or even early elections, intensifying questions about political stability in the Eurozone’s second-largest economy.
Looking ahead, Thursday’s calendar will draw close market attention. The release of Eurozone confidence surveys and the ECB Monetary Policy Meeting Accounts may offer fresh insight into the Governing Council’s latest debate over inflation and growth risks. In the U.S., weekly jobless claims will provide an early look into labor market conditions, while Friday’s Core PCE Price Index—the Fed’s preferred inflation gauge—remains the most anticipated data point of the week.
On the U.S. policy front, political interference concerns resurfaced after President Donald Trump announced plans to dismiss Fed Governor Lisa Cook. The move is seen as an effort to influence the Federal Reserve and potentially redirect monetary policy, reigniting debate over the institution’s independence. According to the CME FedWatch tool, money markets now price in an 87.2% probability of a 25-basis-point cut in September.
Meanwhile, Fed officials continue to shape market expectations. Dallas Fed President Lorie Logan stressed the need for clearer communication as the central bank weighs possible adjustments. She cautioned that focusing solely on banks’ short-term demand for reserves risks inflating the balance sheet unsustainably, and instead called for prioritizing longer-term needs through Treasury holdings.
Fed Chair Jerome Powell last Friday struck a more dovish tone, suggesting that rate cuts could come as soon as September given “rising downside risks to the labor market.” He also acknowledged that tariffs may create a temporary inflationary shock, though such effects could fade over time, potentially allowing for a less restrictive stance. Still, Powell emphasized the delicate balance: inflation risks remain skewed to the upside while employment risks are tilted to the downside.
Richmond Fed President Thomas Barkin echoed caution on Tuesday, describing the outlook as warranting only a “modest adjustment” in rates, reflecting his view of a modestly expanding economy. Against this backdrop, Treasury yields have been subdued: the 10-year yield eased two basis points to 4.246%, while U.S. real yields ticked up to 1.826%. Markets now turn their attention to Thursday’s second estimate of Q2 GDP, where expectations of 3.1% growth could support the dollar if exceeded, or reinforce a dovish outlook if missed.
Technical Analysis
EURUSD has largely traded sideways over the past month, with price action oscillating within a defined range. However, the pair recently came under renewed pressure as it approached the 100- and 200-period moving averages, suggesting a possible repeat of earlier bearish momentum. If this pattern holds, another downside move could unfold, with the next target near 1.1600, where key support aligns. On the 1-hour chart, the 100- and 200-period moving averages are positioned at 1.1643 and 1.1651, making these levels critical to watch for potential bearish acceleration.
Momentum indicators also add weight to the downside case. The RSI has climbed to 62, nearing overbought conditions. A move closer to 70 could trigger renewed selling pressure. Additionally, a notable divergence has emerged between price and RSI: while EURUSD has set lower highs, the RSI has posted higher readings. This divergence suggests waning bullish strength and raises the possibility of a trend reversal. If confirmed, the combination of resistance at moving averages and weakening momentum could open the path for a deeper correction.
Trading Recommendations
Trading direction: Sell
Entry price: 1.1651
Target price: 1.1610
Stop loss: 1.1670
Validity: Sep 05, 2025 15:00:00
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