EUR/USD Nears 1.19 as Shutdown Fears Keep Greenback on the Defensive

Minneapolis unrest fuels budget deadlock risk, raising shutdown fears and pressuring the US dollar.
US Dollar weakens as markets eye Fed meeting, with rate cuts now expected later in the year.
EUR/USD tests 1.19 resistance, with downside risk toward 1.1600 if momentum fades.

Protests in Minneapolis turned violent, with two people shot, and the fallout has reached Washington. Democrats said they will not support the budget bill that needs to be passed by January 30, raising the risk of another US government shutdown.

Against this backdrop, the US dollar has weakened, including against the euro, with the pair moving closer to the 1.19 level. Attention now turns to this week’s meeting, which is widely expected to end with no change in interest rates. If there is a surprise, it would likely be a small rate cut. For now, markets expect the Fed to wait until June before making its next move.

Geopolitical tensions remain in the background. After easing his tone on Greenland, President Donald Trump has shifted focus back to Canada, again threatening higher tariffs.

Minneapolis Attracts Market Attention

The deaths linked to the crackdown on protests in Minneapolis have sparked strong reactions across the US. As a result, Democrats may again block the budget bill. Public pressure is growing for changes in how the border guard agency operates, and Democrats are likely to use the budget vote to push for that.

This sets up another political clash in Washington and raises the risk of a government shutdown in early February. Given how heated the situation has become, any shutdown could last longer than the one seen last year. Investors usually respond to this kind of uncertainty by selling the US dollar, as markets begin to price in a repeat of past disruptions.

Geopolitical tensions also show no sign of easing. After lowering tensions around Greenland, Donald Trump has shifted focus to South Korea and especially Canada. He has warned Canada of steep tariffs if it moves ahead with a trade deal with China, keeping global markets on edge.

US Economy Remains Strong

Last week’s for the US economy showed a result of 4.4% q/q, which was slightly higher than the forecast of 4.3% q/q. This shows that the US economy is holding strong and that a recession, at least in the short term, is currently very unlikely. This means that the Fed is losing one of its arguments for possible cuts, which is why the market currently expects the next stage of easing to take place only in June.

In theory, this should support the US dollar. However, the other factors mentioned earlier are having a stronger influence and are weighing more heavily on the currency right now.

EUR/USD at Important Resistance

The recent rise in the main currency pair pushed prices up to a key resistance area around 1.19, which also marks last year’s highs. Momentum has slowed for now, which could signal short-term resistance. Even so, the main expectation remains that the upward move will continue.

If selling pressure holds at this level, the price could fall back toward the 1.1600 support area.

****

 

Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belong to the investor. We also do not provide any investment advisory services.