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EUR/USD firms up on risk appetite as focus shifts to monetary policy

• The Euro keeps appreciating and reaches one-week highs above 1.1650.
• Hopes of a US-China trade deal and market expectations of a Fed rate cut on Wednesday keep risk appetite alive.
• EUR/USD bullish run remains frail with resistances at 1.1670 and 1.1730

EUR/US is heading higher for the fifth consecutive day on Tuesday, trading just above 1.1650 at the time of writing, from 1.1580 lows last week. The first signs of de-escalation in trade tensions between the US and China, a rare earths agreement with Japan, and hopes that the Federal Reserve (Fed) will cut interest ratesrfurther on Wednesday, are buoying risk appetite and keeping the safe-haven US Dollar (USD) under pressure.

US President Donald Trump has signed an agreement with Japan to secure the supply of rare earths and has kept a positive tone towards China as he tours Asia, affirming that he is optimistic about signing a good deal with Chinese President Xi Jinping. Earlier this week, US Treasury Secretary Scott Bessent assured that the 100% tariff threat is off the table, as China has agreed to delay the restrictions on rare earths at their talks in Malaysia over the weekend.

Meanwhile, the softer-than-expected US inflation data seen last week has practically confirmed that the Fed will cut the Federal Funds Rate by 25 basis points on Wednesday. The central bank is lacking key macroeconomic data to sustain its decisions, as the US government shutdown enters its fifth week, but markets are expecting the bank to hint at a third rate cut in December. Failure to do so might trigger a significant recovery in the US Dollar.

Before that, the US Housing Price Index and Consumer Confidence data might provide some guidance for US Dollar pairs, although a significant US Dollar recovery seems unlikely as long as investors’ appetite for risk remains alive.