The EUR/USD pair is trading near 1.1660 as of October 7, 2025, marking a 0.5% daily decline and testing one-month lows. This movement reflects heightened risk-off sentiment fueled by Eurozone political turmoil, particularly the surprise resignation of French Prime Minister Lecornu, alongside a partial rebound in the USD amid the ongoing U.S. government shutdown. While U.S. fiscal gridlock caps USD upside, the Euro remains under sharper pressure due to its direct exposure to regional instability and subdued economic indicators. Both fundamental and technical analyses suggest a bearish outlook for EUR/USD, with further declines likely into 2025, barring significant macroeconomic or geopolitical shifts.
Market Overview
Key Drivers:
- Eurozone Political Instability:
- French Prime Minister Lecornu’s resignation has triggered fresh concerns about government stability in France and broader EU cohesion. This political uncertainty is amplifying bearish sentiment toward the Euro.
- Geopolitical risks surrounding French elections add downside pressure, as markets fear prolonged instability in one of the EU’s largest economies.
- U.S. Government Shutdown:
- The shutdown, now in its seventh day, delays key economic data releases such as the September Non-Farm Payrolls (NFP), initially scheduled for October 6 but now expected after October 10.
- While the USD is supported by safe-haven flows, fiscal gridlock limits its upside potential. However, USD/JPY’s 2% rally highlights selective greenback strength amid yen weakness.
- Economic Indicators:
- Eurozone: September CPI held steady at 2.2% YoY, signaling persistent inflationary pressures but no fresh data today. German industrial production data (due October 8) is forecast to contract by 1.5% MoM, underscoring manufacturing struggles.
- U.S.: GDP nowcasts for Q3 have dipped to 3.2%, reflecting disruptions from the shutdown, but Fed futures continue to price in two more 25bps rate cuts by year-end amid softening labor signals.
Fundamental Bias:
- Bearish for EUR/USD: Eurozone political and economic instability outweighs U.S. fiscal concerns, while safe-haven flows and selective USD strength further pressure the pair.
Deep-Dive Analysis
Fundamental Analysis: The “Why”
- Eurozone Risks:
- Political instability in France has compounded broader EU cohesion fears, driving risk-off sentiment. This is reflected in the sharp decline of EUR/USD toward key support levels.
- Subdued economic data (e.g., CPI at 2.2% YoY) and weak industrial production forecasts (German manufacturing contraction at -1.5% MoM) further erode confidence in the Euro.
- U.S. Shutdown & Fed Policy:
- Despite the government shutdown delaying NFP data and weighing on GDP growth forecasts, safe-haven flows into the USD have partially offset the downside pressure.
- The market expects dovish Fed policy (two rate cuts by year-end), but this is not enough to drive significant EUR/USD upside amid Eurozone-specific risks.
Technical Analysis: The “When & Where”
Multi-Timeframe Analysis:
- Weekly Chart:
- Bearish reversal confirmed after failing to hold above the 50-week moving average (1.1700).
- RSI(14) has dropped from 59 to 48, signaling weakening momentum.
- Volume spikes on downside breaks further confirm selling pressure.
- Daily Chart:
- Breach below the 50-day moving average (1.1720) validates short-term bearish bias.
- MACD histogram turned negative (-0.0025), confirming downside momentum.
- Lower high at 1.1780 invalidates prior uptrend structure.
- Intraday (1H Chart):
- Aggressive selling has pushed price into the discount zone (~28.74%), below equilibrium (~1.1720).
- Testing key support at the green 1H Order Block low near 1.1680, following a bearish BOS (Break of Structure) and CHoCH (Change of Character) at 1.1720.
- Descending wedge formation points to further downside toward Previous Day Low (PDL) at 1.1660, with RSI(14) at 42—oversold but lacking divergence.
Key Support/Resistance Levels:
- Support:
- 1.1680 (Order Block low).
- 1.1640 (channel bottom, discount extension).
- 1.1590 (major Fibonacci 50% retracement).
- Resistance:
- 1.1720 (equilibrium, broken Order Block).
- 1.1770 (Previous Day High).
Risk & Opportunity Assessment
Downside Risks:
- Prolonged French political instability could drive EUR/USD significantly lower, especially if German industrial production data disappoints further.
- Escalating geopolitical risks (e.g., French elections) may amplify bearish sentiment toward the Euro.
Upside Risks:
- A resolution to the U.S. government shutdown could alleviate USD strength, potentially supporting EUR/USD recovery.
- Stronger-than-expected German industrial production data or ECB pivot toward dovish policy could mitigate downside pressure on the Euro.
Actionable Recommendations
Trade Setup: Short EUR/USD
- Entry: Rejection at 1.1680–1.1690 (Order Block test).
- Stop-loss: Above equilibrium at 1.1725 (~45 pips risk).
- Take-profit levels:
- Initial: 1.1640 (R:R 1:1).
- Extended: 1.1590 (R:R 1:2.5).
Event-Driven Strategy
- Fade upside near resistance (1.1720) ahead of German industrial production data release (October 8). Monitor for potential downside acceleration into NFP revisions post-shutdown resolution.
Long-Term Outlook
- Maintain bearish bias for EUR/USD into Q4 2025, targeting key psychological levels near 1.1500, barring substantial macroeconomic shifts or resolution of Eurozone political risks.
Conclusion
EUR/USD faces significant downside risks amid escalating Eurozone political instability and subdued economic indicators, compounded by safe-haven flows into the USD during the U.S. government shutdown. Technical analysis confirms bearish momentum, with strong confluence between fundamental drivers and price action targeting further declines toward key support levels (1.1640–1.1590). Institutional investors should capitalize on short opportunities while remaining vigilant for event-driven volatility tied to U.S.-EU developments and macroeconomic releases.