Dollar Tests Critical Support as Government Set to Reopen

The dollar is testing critical support levels across major currency pairs as the federal government prepares to reopen after a 43-day shutdown, with traders positioning ahead of a data deluge that could reshape December Fed rate cut expectations. Despite muted FX volatility (EUR/USD has posted daily changes of just 20 pips over the past three sessions) key psychological levels are under pressure as markets digest labor market weakness and anticipate the resumption of official economic releases.

EUR/USD price history

EUR/USD is hovering just below the psychologically important 1.1600 level after multiple failed attempts to break through, while USD/CAD punctured the 1.40 support level for the first time this morning, extending the loonie's recent strength. AUD/USD is approaching resistance at 0.6550, though the Australian dollar hasn't tracked gold's impressive rally during Tuesday's US session as strongly as historical correlations would suggest. The compressed trading ranges reflect trader caution ahead of delayed economic data, with market participants split between growing evidence of labor market deterioration—including October's 175% year-over-year surge in job cuts—and Fed officials' divided views on whether to cut rates in December. Current futures markets price in roughly two-thirds probability of a 25-basis-point cut, leaving substantial room for repricing once official data resumes flowing.

Beyond Fed-driven narratives, USD/JPY was sharply rejected at the 155.00 level after touching February highs, with Bank of Japan officials signaling heightened intervention risk at that threshold as the yen weakens across the board. USD/CHF broke cleanly through support at 0.8000, sliding from 0.81 last week on Swiss trade deals and potential safe-haven flows, now targeting the 0.79 area as one of the few major pairs trading decisively through key levels rather than stalling at support or resistance. With FX volatility compressed and critical levels in play across multiple pairs, the next catalyst will likely come from the data releases that have been on hold for over a month—positioning traders for potential sharp, directional moves as clarity returns to dollar valuations.

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