06.10.202613:00 Analisis Forex & Kajian: EUR and GBP recover after Asian plunge, but USD still in control

After Monday's drop to a 17-month low, the euro moved higher on Tuesday, and the weak European retail print seemed to go unnoticed. The pound joined the rebound thanks to an unexpectedly decent report from UK builders. The dollar remains the strongest of the three currencies, and both pairs are moving up more from inertia and relief in the sovereign bond market than because anyone believes a new trend has begun.

This morning Europe reported retail sales for August, and the figure was weak. In the eurozone sales rose just 0.1% month-on-month after a 0.6% decline in July; the same pattern held for the EU. The indicator answers a simple question—do people spend in shops—and consumer demand is the basis for domestic growth. A 0.1% increase suggests consumers, at best, have stopped contracting, but there is a long way to go before any recovery. The most telling line in the report concerns fuel: motor fuel sales fell 1.9%, meaning people are driving less because filling up has become too expensive. Expensive energy, which pushed eurozone inflation to 3.8% in September, hits wallets directly, and for a region reliant on exports, weak domestic demand remains a long-standing problem.

The market, however, looked the other way. European bond yields retreated from multi-year highs, led in the rebound by French and Italian paper. That eased some of the pressure that pushed the euro down on Monday morning, and those who bought the dip benefited.

For the pound, the morning brought a pleasant surprise from construction. The sector's PMI rose to 46.1 from 44.3 in August, versus an expected reading of about 45. The 50-point mark separates expansion from contraction; while the index remains below 50 the sector is shrinking. Today it is simply contracting more slowly, and the market priced precisely that dynamic rather than the absolute level. Commercial construction looked best; housing fared worst, hampered by costly borrowing. Behind the upbeat headline, however, the report is noticeably gloomier: new orders are falling faster than before, firms are postponing large projects and complaining about rising costs, employment in the sector has declined every month since January 2025, and lead times are lengthening due to shipping disruptions tied to the Middle East conflict. That is an uncomfortable picture for the Bank of England. Weak demand argues for caution, while price pressure prevents complacency, so any discussion about rates is only more complicated.

In the afternoon, attention shifts to the US labor market, which already shook the dollar on Friday. ADP private payrolls—the weekly private hiring estimate—and the RCM/TIPP economic optimism index will be released. Two Fed speakers, Michelle Bowman and Jeff Schmid, will also speak. Their remarks will be watched closely because the September report was weak: payrolls rose by only 29,000, revisions to July and August removed another 60,000 jobs, unemployment rose to 4.2%, and wages grew just 0.1% month-on-month. As a result, the probability of an October rate hike fell to roughly 20% from 70%.

Comparing today's remarks with past positions is straightforward. Bowman has previously been listed among likely dissenters on hikes, so her tone has historically been more cautious than hawks such as Hummock, Kashkari, and Logan, who voted to tighten as early as July. Schmid, by contrast, has argued that policy is not restraining the economy, which is a tougher stance. If, after the weak report, he maintains that confidence, the market will read it as a signal that an October pause does not mean the end of the hiking cycle. A softer tone from him would be a notable shift.

I think Bowman's and Schmid's words will matter more than ADP and RCM/TIPP, because after the revisions the market has learned to treat such indicators cautiously. Ahead of the minutes of the September meeting, which will reveal the committee's debates, any hawkish language will bring dollar buyers back, while dovish language will give the euro and pound a chance to cement their rebound.

Momentum

For the euro, the upside works at 1.1265. If the pair clears that level and holds above it, the first target lies at 1.1286, the second at 1.1310. I believe in that path only up to the first target, because the bounce is technical, and a strong dollar and high US yields will quickly cool any upside. On the downside, the trigger point is 1.1235, beyond which targets are 1.1207 and 1.1165. That scenario sets in if Schmid speaks hawkishly and the Fed minutes remind the market of the committee's hawkish leanings. The corridor between the two points is 30 pips, so price will likely drift inside it until the speeches, and I would not trade first touches. The upside scenario seems slightly more likely to me, but only if the price holds above 1.1265; ultimately the Fed speakers will decide.

For the pound, I consider buy orders above 1.3254 with targets at 1.3279 and 1.3307 and sells below 1.3223 with targets at 1.3191 and 1.3161. The gap between points is 31 pips. The construction PMI gave the pound breathing room but did not remove budgetary or price problems, so I would not expect much beyond 1.3279. The downside scenario feels closer for the pound than for the euro because the pound's supports are thinner. It will come into play if Bowman's and Schmid's remarks bring dollar buyers back, in which case the pound will likely follow the euro down. With a dovish Fed tone, the rebound could reach 1.3279, though holding there would be difficult.

Mean Reversion

Today, the reference points sit a few pips from breakout levels, and it is easy to confuse one for the other.

For the euro, the upper reference at 1.1270 is only 5 pips above the trigger at 1.1265, so novices should be especially cautious. That gap is smaller than typical market noise, so on first touch it is impossible to tell a real breakout from a false one. If the price clears the zone and convincingly holds above, movement to 1.1286 has begun and selling is off the table. If the pair spikes above 1.1270, fails to hold, and returns below 1.1265, the return trade is in play, and I would consider shorts with a stop above the failed high. The lower reference at 1.1227 sits 8 pips below the trigger 1.1235 on the way to the first target, 1.1207. If the price moves calmly down, 1.1227 is only a stop—buying is premature. I consider buys when the pair dips below 1.1227, cannot follow through, and returns above 1.1235, placing the stop under the low of that dip. Such returns happen more often when Fed speakers deliver no surprises and the market's first reaction quickly fades.

For the pound, the upper reference at 1.3263 sits 9 pips above the trigger 1.3254 and lies en route to the first target 1.3279. If the pair holds above 1.3254, 1.3263 is just a step, and selling there is inappropriate. I look for a spike above 1.3263, failure to hold, and a return below 1.3254, only then considering shorts with a stop above the local high. The lower reference at 1.3226 sits inside the corridor, just 3 pips above the trigger at 1.3223, and it is the day's trickiest level. If the price plunged below, reached 1.3223, and held under it, that is a breakout, and buying is off the table. If it dipped under 1.3226, did not reach 1.3223, and quickly returned above 1.3226, the return trade works, and buys are possible with a stop under that dip. For the pound, this scenario is especially relevant if US comments come out neutral, because the first reaction would blow out and then the pullback would return the pair into the corridor.