USD Weakens on Dovish Data but Geopolitical Risks Remain

The USD faced a dovish turn last week due to weaker-than-expected US economic data, including lower Core PCE Price Index and Average Hourly Earnings. The US Non-Farm Employment Change also missed forecasts, pushing Treasury yields lower and reducing expectations for a Fed rate hike. Despite these factors, the USD remained strong, supported by higher Treasury yields and geopolitical tensions.

Markets ended the week favoring a softer US growth narrative, which weakened the USD's rate advantage. However, geopolitical risks and oil price fluctuations could quickly reverse this trend. The EUR/USD pair saw a significant bearish breakdown, reaching a 16-month low before partially recovering. The Euro weakened due to Europe-specific risks, such as France's fiscal concerns and reduced expectations of an ECB hike.

Looking ahead, next week's key data points include the FOMC Meeting Minutes and Canada's Unemployment Rate. The USD Index printed a bullish candlestick, reaching an 18-month high, but caution is advised due to potential dovish news. The EUR/USD pair's bearish trend remains strong, with a clear sequence of lower highs and lows. The NASDAQ 100 Index and other risk assets may strengthen as the USD declines.

For October 2026, the EUR/USD pair is forecasted to decline in value. Volatility is expected to remain low, with only 19% of currency pairs moving more than 1% last week. Traders are advised to focus on other assets and remain neutral on the USD over the coming week.