Key Events This Week
- ISM PMIs: to clarify US economic activity (Tuesday–Thursday)
- US NFPs and their impact on rate cut expectations and DXY price action (Friday)
- Effects of US trade and legal developments, EU political shifts, and Middle East escalations on risk sentiment
Although the US Labor Day holiday is keeping US indices on hold, global markets are reacting to rising geopolitical tensions across the Middle East with Israel, between Russia and Ukraine, and with US tariff developments. These tensions have pulled risk appetite lower, holding indices below their record highs. Gold has approached its record high near 3,480, silver hit new 14-year highs above 40, and Bitcoin fell to 107,000 after previously reaching 125,000.
From a currency market perspective, concerns over Fed independence have further weakened confidence in the dollar, accelerating rate cut expectations and bearish dollar outlooks. Meanwhile, EU political risk is also rising, and bond yields have surged to historical highs:
- German 30-year yields are at a 14-year high of 3.36%
- UK 30-year yields have reached their highest since 1998, at 5.64%
This keeps EURUSD and GBPUSD in holding patterns against the DXY, unless US rate cut expectations trigger a further pullback in the dollar.
A notable head and shoulders continuation pattern is forming on both the EURUSD and DXY charts, suggesting possible extended bullish movement for the euro and further bearish pressure on the dollar.
Technical Analysis: Quantifying Uncertainty
DXY Outlook: Daily Time Frame – Log Scale
Source: Tradingview
The DXY rebound between July and August has shaped a head and shoulders pattern. The chart is now testing the downside breakout, with the daily RSI turning bearish and slipping below the 50 level. A clean break below the 97.50 support could extend losses toward 97.20 and 96.50, with the full head and shoulders pattern pointing to a potential move down toward the 95.00–94.50 zone.
On the upside, a rebound above the 98.00 level would suggest some bullish recovery. However, a sustained move above 100.20 is needed to confidently shift the outlook toward a longer-term bullish reversal.
EURUSD Outlook:Daily Time Frame – Log Scale
Source: Tradingview
On the flip side, EURUSD is holding at the neckline of a possible inverted head and shoulders formation. The daily RSI is accelerating above the 50 mark, supporting the bullish scenario. A key resistance to watch is 1.1740, above which gains may extend toward 1.1780 and 1.1830. A further breakout could confirm the bullish trend and open the path toward the 2021 highs between 1.20 and 1.23.
On the downside, if the pair pulls back below 1.1680, the next support levels are at 1.1650, 1.1570, 1.1520, and 1.1480 respectively.
Written by Razan Hilal, CMT
Follow on X: @Rh_waves
