On Tuesday, the euro-dollar pair tested the 19-figure mark again amid broader weakness in the American currency. The bullish sentiment for the pair is not only due to the strengthening of the yen (which, by the way, has already begun to give up its positions on Tuesday) but also to other fundamental factors. These include the threat of a shutdown, the Federal Reserve's independence, and tensions in relations among the US, Canada, and South Korea.
As is known, the United States is once again on the brink of a shutdown. The previous one, the longest in history, lasted 42 days and ended on November 12 last year. The main stumbling block at that time was healthcare. Republicans and Democrats could not agree on healthcare subsidies under the Affordable Care Act (ACA). Republican funding proposals did not include extended subsidies, while Democrats insisted on their maintenance.
Ultimately, Congress approved temporary funding for the federal government until January 30 of this year, reaching a compromise decision. This time, the US is on the brink of yet another shutdown due to tragic events in Minnesota. According to American media, Congress was "close enough" to passing a funding bill for the current year, but the second killing by ICE (Immigration and Customs Enforcement) agents in a month led Democratic congressmen to back out of previous agreements. According to Senate Minority Leader Chuck Schumer, Democrats will block the budget bill if it includes funding for the Department of Homeland Security (DHS).
ICE is part of this department and is one of its agencies responsible for immigration control and law enforcement (including investigations, arrests, and deportations). Notably, thanks to the "big beautiful bill" lobbied by Trump, ICE will continue its operations regardless of whether a shutdown occurs. However, Democrats demand that DHS/ICE funding be separated from the overall budget package and linked to reforms within the agency (such as requiring arrest warrants, banning agents from wearing masks, etc.) and to the introduction of stricter oversight mechanisms for the agency's actions.
The budget bill must gain 60 votes in the upper chamber of Congress, while Republicans hold only 53 seats in the Senate. This means at least 7 Democrats must support it. Furthermore, three of the eight Democratic senators who voted for the compromise budget bill in November have already publicly opposed funding for DHS.
As of today, the likelihood of a partial shutdown is estimated at about 70-80% (according to various assessments). The probability of this scenario increased after Donald Trump stated in an interview with Fox Business that he does not rule out the possibility of suspending government operations.
According to several experts interviewed by The Wall Street Journal, the White House may agree to separate ICE funding from the larger budget package (a less likely scenario) or to implement limited reforms regarding control and accountability of the agencies (a more likely scenario). However, whether the Democrats will agree to such "half-measures" remains an open question, given the upcoming midterm elections in Congress this fall. At least for now, the positions of both sides remain quite rigid, which means the risk of a partial shutdown persists.
Additional pressure on the greenback is exerted by Trump, who threatens to impose 100% additional tariffs on Canadian imports if Canada continues or expands trade agreements with China. According to the US president, Ottawa's actions pose a threat to American economic security, as Canadians "try to circumvent the positions of the United States." Although Canadian Prime Minister Mark Carney assured that his country would not seek a free trade agreement with China and that the deals made align with the USMCA agreement, Trump has yet to retract his threats. The situation remains uncertain.
As for South Korea, the US president has announced an increase in tariffs on South Korean imports to 25%, up from the previous 10%. The head of the White House accused Seoul (or rather, the country's parliament) of delaying the ratification of the trade agreement reached last year. He did not specify when the new tariffs would take effect. It is clear that in this case, Trump is applying the "tariff club" as a preventive measure to spur South Korean lawmakers to ratify the document more quickly. Yet, this fact has added further pressure to the greenback amid overall uncertainty regarding US international trade.
Thus, the current fundamental background does not favor a downward reversal for EUR/USD. The situation could change if the Fed adopts a hawkish stance, ruling out a rate cut at the next meeting. However, in my opinion, traders have overly high expectations regarding the Fed's potential "hawkishness." Therefore, long positions in the EUR/USD pair appear more logical and attractive.
From a technical perspective, the pair is either at the upper line or between the middle and upper lines of the Bollinger Bands indicator on all "higher" timeframes (from H4 and above), as well as above all Ichimoku indicator lines. Euro buyers are trying to consolidate above the 1.1860 resistance level (the upper line of the Bollinger Bands on the W1 timeframe). The next target for the upward movement is 1.1930 (the upper line of the Bollinger Bands on the H1 timeframe). Breaking through this target will open the way for euro buyers to the 20-figure area.
