The EUR/USD pair was attempting to stabilize around the 14th figure on Tuesday– the first time since the beginning of August this year. Sellers have updated the three-month price low thanks to the Federal Reserve and the shutdown. To be precise, the dollar received support from some Fed officials who expressed hawkish rhetoric, as well as from U.S. House Members who proposed a bipartisan plan to end the shutdown.

At the same time, traders ignored the ISM manufacturing index, with almost all its components in the "red zone." Furthermore, market participants disregarded the rise in "dovish" expectations regarding the Fed's future actions, despite hawkish signals from some members of the U.S. central bank. This is another "warning sign," indicating that the greenback is rising on somewhat shaky grounds.

The ISM manufacturing index unexpectedly fell to 48.7 in October. Over the previous two months, this indicator showed an upward trend, reaching 49.1, and October was expected to be the third month in this series (the forecast was 49.4). However, contrary to expectations, the index declined, reflecting a deteriorating situation in the manufacturing sector. It is worth noting that the indicator has been in the contraction zone for the eighth consecutive month since March this year. The price index for raw materials (the price component of the ISM index) also fell short of forecasts, coming in at 58.0, whereas most analysts expected it to be at 62.4. Here, we can speak of a downward trend: this indicator has fallen for the fourth consecutive month. The production index dropped to 48.2 (after rising to 51.0 in the previous month), and the employment index fell to 46.0. All key components of the release are therefore also in the contraction zone. Most sectors (11 out of 18) reported declines in new orders.

Overall, the report published on Monday indicates that the U.S. manufacturing sector remains under pressure. Enterprises and factories are producing less than a month ago, and they are either laying off employees or not hiring new ones. Although the release reflected some positive aspects, they clearly do not dominate – for example, the index of new orders was slightly above the previous month but remained in the contraction zone.

After the publication of the ISM manufacturing index, "dovish" expectations regarding the Fed's future actions have again risen in the market. The probability of a 25-basis-point rate cut increased to 73% according to the CME FedWatch tool. Notably, market participants were not swayed even by some Fed representatives who expressed hawkish rhetoric on Monday. Specifically, Chicago Fed President Austan Goolsbee questioned the appropriateness of a rate cut in December, raising concerns about inflation (inflationary risks, in his opinion, outweigh the employment risks).

In turn, board member Lisa Cook stated that an excessive rate cut "will increase the likelihood that inflation expectations become unstable." She noted that the outcomes of the December meeting would depend on macroeconomic data, which is not yet available.

The "doubting" position was also voiced by San Francisco Fed President Mary Daly. According to her, she will analyze key macroeconomic indicators when deciding whether to cut rates at the end of the current year.

The "moderately hawkish" rhetoric from Fed representatives supported the greenback, despite the market pricing a 73% chance of a rate cut in December.

In my opinion, additional support for the dollar came from news regarding the ongoing shutdown. It became known that a group of Democrats and Republicans in the House of Representatives developed a new bill to overcome the political crisis and resume operations of the U.S. government. The initiative includes extending tax provisions under the Affordable Care Act for two years. It also proposes gradually introducing income limits for recipients of these benefits.

This is the first instance of bipartisan coordination since the shutdown began. Theoretically, this bill could lead to a resolution of the political crisis. The dollar responded positively to this initiative, despite the fact that the White House and key senators have not yet voiced their stance on the proposed initiative.

From a technical perspective, the EUR/USD pair is testing the support level at 1.1480 (the lower line of the Bollinger Bands indicator on the H4 timeframe and, simultaneously, the Kijun-sen line on the W1 timeframe). Despite the impulsive price decline, sellers have not managed to overcome this price barrier (although the low was recorded at 1.1474). In my opinion, the pair is declining on shaky grounds, so short positions are risky, at least until the bears of EUR/USD establish themselves below 1.1480. If the downward impulse fades in this price area, longs may become relevant again, targeting 1.1530 (the middle line of the Bollinger Bands on H4) and 1.1570 (the Tenkan-sen line on D1).