EUR/USD Extends Losses on Turnaround Tuesday as USD Strengthens

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As anticipated in our previous analysis, the EUR/USD pair extended its losses on Turnaround Tuesday, breaking through a weak demand area that had little support from underlying fundamentals. The euro continued to slide as the US Dollar (USD) maintained its upward momentum, driven by a combination of economic data and market sentiment.

US Dollar Strength Backed by FOMC Minutes
The ongoing strength of the USD has been bolstered by the Federal Open Market Committee (FOMC) minutes from the September 18 meeting. The minutes revealed that a "substantial majority" of Fed policymakers supported easing monetary policy with a 50-basis-point rate cut. However, they refrained from setting a specific timeline for future cuts, leaving room for further policy adjustments based on upcoming economic data.

The hawkish undertone of the FOMC's position has given the USD additional support in recent weeks, fueling its rally against major currencies, including the EUR.

FedWatch Tool Highlights Market Expectations
According to the CME Group’s FedWatch Tool, market participants are currently pricing in an 88% probability of a 25-basis-point rate cut at the next Federal Reserve meeting. This high probability reflects growing expectations of further monetary easing, which has helped sustain the greenback’s strength.

Upcoming US Economic Data to Watch
Looking ahead, the market's focus will shift to Thursday, when the US releases key economic data, including USD Core Retail Sales (m/m), Retail Sales (m/m), and Unemployment Claims. These reports are expected to inject volatility into USD-correlated currency pairs, particularly EUR/USD, as they will offer insights into the strength of the US economy and provide further direction for the USD.

Traders will closely watch these releases to gauge the health of the US economy and its potential impact on the Federal Reserve’s future rate decisions. Strong retail sales data and lower unemployment claims could strengthen the USD further, while weaker-than-expected figures may signal the need for more aggressive monetary easing.

Market Positioning and Technical Outlook
From a market positioning standpoint, recent data shows a shift in sentiment among speculators and commercial traders. Speculators have reduced their net long positions in the EUR, indicating decreased confidence in the euro’s near-term prospects. Conversely, commercial traders have increased their net long positions, suggesting that some institutional investors believe the EUR may be undervalued at current levels.

From a technical perspective, we are closely monitoring two key demand areas on the chart. The price is nearing these zones, and we are waiting to see how the market reacts before making any decisions about entering long positions. If the price finds support at one of these demand areas, it could signal a potential reversal or retracement. However, as always, patience is crucial in waiting for confirmation before executing any trades.

Conclusion
The EUR/USD pair remains under pressure as the USD continues to dominate, fueled by expectations of further monetary easing and strong economic data. While the pair is approaching key demand areas, traders should exercise caution and wait for clearer signals before entering long positions. With Thursday's US data releases on the horizon, the markets are set for increased volatility, and these reports will likely shape the next phase of EUR/USD's direction.

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