Key Takeaways
- EUR/USD is consolidating near two-month highs around 1.1730-1.1740 after reaching 1.1762, having gained nearly 2% over the past three weeks on broad US Dollar weakness
- The Fed’s 25 basis point cut to 3.50%-3.75% and the split 9-3 vote have reinforced dollar weakness, with the DXY down over 7% year-to-date toward 98.50
- ECB officials have adopted a hawkish tone, with Schnabel and Simkus suggesting no further rate cuts are needed and that the next move could potentially be a hike
- Technical indicators remain bullish with the 20-period SMA above the 100 and 200-period SMAs; RSI at 69 suggests some overbought conditions but the uptrend remains intact
- Key resistance levels are at 1.1762, 1.1780, 1.1820, and 1.1917; support is found at 1.1720, 1.1680, 1.1615, and the critical 55-week EMA at 1.1360
- This week’s focus is on delayed US NFP and CPI data, Fed speeches, and the ECB policy decision, which will shape near-term direction for the pair
Market Dynamics and Recent Performance
The EUR/USD pair enters the new trading week consolidating just below multi-month highs, with spot prices hovering around the 1.1730-1.1740 region. The pair reached a fresh two-month peak of 1.1762 last Thursday, representing gains of nearly 2% over the past three weeks as the euro capitalized on broad-based US Dollar weakness following the Federal Reserve’s latest monetary policy decision.
The rally has been primarily driven by the widening monetary policy divergence between the Federal Reserve and the European Central Bank. The Fed delivered its third consecutive 25 basis point rate cut last week, bringing the federal funds target range to 3.50%-3.75%, its lowest level in three years. The decision came through a notable 9-3 split vote, highlighting internal divisions among policymakers. One member advocated for a more aggressive 50 basis point reduction, while two regional Fed presidents preferred to hold rates steady, reflecting the ongoing debate between growth concerns and inflation persistence.
The US Dollar Index (DXY) has tumbled toward the 98.50 level, extending its decline to over 7% year-to-date. This structural dollar weakness has provided significant tailwinds for the euro, which has emerged as the strongest performer among major currencies this month. The greenback’s inability to stage meaningful rallies despite mixed economic data suggests a broader sentiment shift, with investors positioning for continued Fed easing and potential leadership changes at the central bank.
Market speculation has intensified around the possibility that Fed Chairman Jerome Powell, whose mandate expires in May 2026, could be replaced by Kevin Hassett, who is perceived as more dovish. This uncertainty has added another layer of downward pressure on the dollar, as traders price in the potential for an extended easing cycle under new leadership.
Technical and Fundamental Influences
From a technical perspective, the near-term outlook for EUR/USD remains bullish despite the current consolidation phase. The pair is trading comfortably above its key moving averages, with the 20-period Simple Moving Average climbing above both the 100-period and 200-period SMAs, all of which are rising. This alignment of moving averages provides strong confirmation of the prevailing uptrend and offers dynamic support near the 1.1656 level.
The 55-week Exponential Moving Average, currently positioned at 1.1360, represents the critical longer-term support that must hold for the broader uptrend from the 2022 low of 0.9534 to remain intact. As long as prices remain above this level, the bullish case for further gains toward the psychologically significant 1.20 handle remains valid. A decisive break above 1.20 would carry larger bullish implications and potentially signal a more structural shift in the pair’s trajectory.
Momentum indicators are showing mixed signals following the recent sharp rally. The Relative Strength Index has retreated from overbought territory but remains at 69 on the daily chart, still elevated and consistent with a solid bullish trend. The 4-hour RSI has pulled back to around 63 after exceeding 70, suggesting that the consolidation is allowing for healthy profit-taking without undermining the broader uptrend. The Moving Average Convergence Divergence indicator has begun to flatten on shorter timeframes, hinting at a potential pause before the next directional move, while remaining in positive territory overall.
On the resistance front, immediate barriers are identified at the 1.1762 multi-month high, followed by the October 1 peak near 1.1780 and the September highs around 1.1820. A sustained break above this zone would open the path toward the 1.1917 high registered earlier in the year. To the downside, initial support sits at the December 12 low near 1.1720, with more substantial floors at the 1.1680 area and the December 9 low at 1.1615. The 20-day SMA near 1.1599 and the 1.1500 psychological level represent deeper support zones.
Fundamentally, the euro is benefiting from an increasingly hawkish stance by European Central Bank officials. ECB Governing Council member Gediminas Simkus stated that no further rate cuts are required, citing inflation running near the 2% target. Executive Board member Isabel Schnabel reinforced this message, expressing comfort with market expectations that the next ECB move could potentially be a rate hike rather than a cut. ECB President Christine Lagarde has emphasized that the eurozone economy is in a “good place” and hinted at potential upward revisions to growth forecasts, further supporting the single currency.
Political risks in France have eased somewhat after the National Assembly narrowly approved the 2026 social-security budget, providing temporary support to the minority government. However, attention remains on the passage of the broader state budget, which continues to pose uncertainty. Lower energy prices, hopes for de-escalation in the Russia-Ukraine conflict, and anticipated German fiscal stimulus in 2026 have all contributed to improved sentiment toward the euro.
Looking Forward
This week presents a packed economic calendar that could significantly influence EUR/USD price action. In the United States, delayed macroeconomic releases are set to catch up following the recent government shutdown. The October and November Nonfarm Payrolls reports are scheduled for Tuesday, while November’s Consumer Price Index data will be released on Thursday. These releases will provide crucial insights into the health of the US labor market and inflation dynamics, potentially reshaping expectations for Fed policy in 2026.
Multiple Federal Reserve officials are scheduled to speak throughout the week, including Governor Stephen Miran and New York Fed President John Williams on Monday. Their commentary will be closely scrutinized for additional clues about the central bank’s policy trajectory. Meanwhile, the European Central Bank will announce its monetary policy decision later in the week, with markets expecting the ECB to maintain its data-dependent approach while potentially reinforcing its more cautious stance on further easing.
The technical setup suggests that the current consolidation phase is allowing overbought conditions to normalize, potentially setting the stage for another leg higher. Analyst consensus points to a test of the 1.1800-1.1820 resistance zone if dollar weakness persists, with more optimistic forecasts targeting the 1.1917 level. Conversely, a hawkish surprise from Fed officials or stronger-than-expected US economic data could trigger a pullback toward the 1.1600-1.1650 support area.
Bank forecasts for EUR/USD remain divided on the medium-term outlook. Bank of America projects the pair reaching 1.22 by end-2026, though this has been revised down from earlier estimates of 1.25. Credit Agricole takes a more bearish view, forecasting a decline to 1.10 by year-end 2026, citing concerns about US tariffs, French political risks, and potential headwinds to eurozone exports. The resulting policy gap between the Fed and ECB will likely remain the dominant driver, with rate convergence favoring euro strength as long as the Fed maintains its easing bias.
