The U.S. Dollar index (DXY) is trading flat at 104.28, while the EURUSD has edged up by 0.21% to 1.08180 this week. The Dollar had rallied for four consecutive weeks but the EURUSD ended last week 0.60% lower after touching 1.07600 on Wednesday, the lowest level since 3 July.
The EURUSD began its recovery on Thursday following speeches by European Central Bank (ECB) President Christine Lagarde and Bank of England Governor Andrew Bailey. Stronger-than-expected U.S. manufacturing and services PMI data weighed on the Dollar despite weak PMIs in both the Eurozone and the UK.
From a technical standpoint, the EURUSD has broken through and successfully retested the resistance of a descending channel at 1.07800. This breakout opens a recovery pathway that could help release oversold pressures after the pair's 3.48% drop in October, marking its steepest decline since September 2023. The last oversold condition triggered a 6.0% rally, and a potential 2.0-2.5% rebound towards 1.10000-1.10500 could be on the cards this time, aligning with large investor sentiment. The WisdomTree Bloomberg US Dollar Bullish Fund (USDU) saw a $25.7 million position betting on a weaker Dollar during the second week of October, with entries around 1.09000 for EURUSD, indicating continued interest in a Dollar downturn.
Geopolitical tensions in the Middle East appear to be easing, even after Israel's formal retaliation against Iran, which is reducing demand for the safe-haven Dollar. Expectations are also for weak U.S. Nonfarm Payrolls in October, set for release this Friday, and a slowing PCE Price Index following lower headline inflation. All these factors support potential downside for the Dollar as currency markets position themselves ahead of the U.S. presidential elections on 4 November, where a swift Dollar correction could be anticipated.