Euro-to-Dollar Week Ahead Forecast: Limited Trade War Boost

The euro isn't capitalising on renewed tensions between China and the U.S. over trade.

The euro to dollar exchange rate (EUR/USD) rose on Friday as news came through that U.S. President Donald Trump would respond to new Chinese export controls with a 100% import tariff on Chinese goods, due to come into effect in November.

The market responded by dusting off the 2025 trade playbook again and obeying instructions to buy euros when fears for the U.S. economy rise.

Euro-dollar rose to 1.1630 following Trump's unexpected move, and the bulls would have wanted to see follow-through price action on Monday for the exchange rate to flip the technical setup from near-term negative to positive.

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i - Based on average EUR/USD rate observed in July.

Unfortunately for these bulls, the euro has been unable to capitalise on Friday's impulse move higher, which leaves us with a setup that advocates for further weakness in the coming days and even weeks.

The U.S. and China indicated over the weekend that they were ready to talk, which in itself indicates that some behind the scenes communications took place.

We view these recent developments as both sides firming their positions ahead of an expected Trump-Xi meeting at the APEC gathering in South Korea, which runs from October 27 to November 01.

If the market agrees, then stocks and the dollar can recover from Friday's softness, which would keep the euro under pressure near-term.

EUR/USD's daily chart shows the current level in spot is below the nine-day exponential moving average (EMA), which is consistent with a near-term downtrend:

Our base case is that the pair can consolidate a little over the coming days, the muscle memory of Friday's fall and heightened interest in headlines concerning trade.

However, when directionality kicks in again, we would look for further stones, as this would be consistent with the direction of travel ahead of the consolidation.

A move back to 1.1550, and then even lower, is therefore possible in the coming two weeks.

"Technically the currency is in jeopardy of a bigger drop to 1.14," says a recent note from Société Générale.

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Beyond trade headlines, there is finally the chance for us to sink our teeth into some real U.S. data, something that has been missing from forex circles since the commencement of the partial shutdown of the U.S. government earlier this month.

The U.S. Department of Labour has reportedly recalled some employees to prepare the release of the September CPI report scheduled for release October 15th.

Here, the expectation is for another 0.4% m/m increase in inflation, with the annual rate rising to 3.1% from 1.9% y/y.

Anything below here would trigger a weaker U.S. dollar as it would prompt the markets to raise bets for further Federal Reserve interest rate cuts.

The market expects further rate cuts in the coming months, but it has wavered in its conviction as the economy continues to perform with robust assurance and is hardly screaming out for lower interest rates.

Sure, the labour market is cooling, but again, it isn't desperate.

As traders wake up to the nuanced realities facing the Federal Reserve, the dollar can recover.

Looking at the multi-month big picture, the dollar is in a major period of depreciation, which means that the current period of weakness is viewed as a pullback in the bigger trend, something that analysts see resuming in 2026.