Forex & Commodities Alert: EUR/USD Reversal vs. Oil's 5-Month Low

The markets are sending divergent signals today. While a dovish Federal Reserve is fuelling a technical reversal in EUR/USD, the commodities space is grappling with a severe oil supply glut. For active traders, these two scenarios present contrasting strategies.

Today’s market action is a study in polarity. On one side, the US Dollar is weakening, creating a crucial technical buy signal in the major EUR/USD pair. On the other, the oil market is plummeting to a five-month low. This volatility across asset classes reinforces the need for a targeted, informed trading strategy.

Trade 1: EUR/USD – The Fed Reversal Pattern

The Euro is staging a significant rebound, rising to the 1.1630 level from a recent two-month low of 1.1545. This move is almost entirely attributable to a sudden shift in the US Dollar's outlook, triggered by Federal Reserve Chair Jerome Powell.

Key Drivers:

• Dovish Fed Pivot: Powell has explicitly highlighted the weakening US labour market over inflation risks, signaling that the Fed is ready for back-to-back rate cuts in October and December (a 25 basis point reduction each time). This has dragged the USD lower and boosted risk sentiment.
• End of QT: Powell also indicated the bank is close to ending its quantitative tightening (QT) program, which removes another support factor for the Dollar.
• Escalating Trade Tensions: Ongoing trade friction between the US and China, ahead of the APAC summit, continues to overshadow the broader risk outlook, keeping the Dollar sensitive to external shocks.

Technical Forecast (EUR/USD):

The price action is compelling. On the 4-hour chart, EUR/USD has found support at 1.1545, forming a classic double bottom reversal pattern.

• The pair is now challenging the 50 SMA resistance at 1.1635, supported by an RSI above 50.
• Bullish Target: Buyers will look to extend the recovery toward the crucial 1.17 resistance zone, which coincides with the psychological level, the 200 SMA, and the upper band of the falling channel.
• Bearish Risk: Failure to clear the 50 SMA at 1.1635 could see the price fall back to retest the 1.1545 low.

Stay ahead of the next moves by monitoring speeches from ECB Vice President Luis de Guindos and key Fed officials like Christopher Waller and Stephen Miran. For a deeper understanding of technical signals, explore our Forex market analysis section.

Trade 2: Oil – Bearish Control on Supply Glut

The commodities side presents a contrasting, bearish opportunity. Oil prices have plummeted to a five-month low of 57.60 this week, extending losses amid fears of a significant supply surplus.

Key Drivers:

• Massive Supply Glut: The International Energy Agency (IEA) has projected a larger-than-expected surplus, with "massive volumes of oil in storage or transit." This fundamental oversupply is the primary bearish catalyst.
• Weakened Demand Outlook: Concerns over escalating US-China trade tensions, compounded by deflationary CPI data in China (-0.3% YoY), hurt the demand outlook from the world’s two largest oil consumers.
• Fading Risk Premium: The reported Israel-Hamas peace deal has eased geopolitical supply concerns, removing a key risk premium that had previously supported prices.

Technical Forecast (Oil):

Bears are firmly in control, having formed a series of lower highs and lower lows since mid-June. The price has recently broken below the 60.00 psychological level.

• The price trades firmly below its 50, 100, and 200 SMAs, and the RSI remains below 50.
• Bearish Target: Sellers will look to extend the selloff toward the 55.35 level, which represents the 2025 low.
• Bullish Hurdle: Buyers need to push the price decisively above 60.00 to expose the 50 SMA at 62.90.

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