EUR/USD is currently positioned at approximately 1.1622, exhibiting a narrow consolidation range as market participants prepare for the Federal Reserve’s concluding rate decision for 2025. The pair is positioned just above its 1.1605 support level, indicating a degree of investor uncertainty regarding the potential finality of the Fed’s 25-basis-point cut in this cycle. Current futures markets indicate an 89% likelihood of a reduction to 3.50%–3.75%, whereas liquidity models propose that the Fed might increase its balance sheet by $45 billion each month in 2026. Market participants are closely monitoring Jerome Powell’s press conference and the revised dot plot, which will indicate whether decision-makers are inclined towards one or two additional rate cuts in the upcoming year. In light of the current high-stakes environment, the U.S. Dollar Index is positioned at 99.25, reflecting a decline of over 7% year-to-date, as traders are in the process of unwinding long-dollar positions that have accumulated since 2022. The EUR/USD cross is experiencing gains due to widespread dollar fatigue and the lack of new U.S. macroeconomic data — inflation figures and the November nonfarm payrolls are still pending because of the current government shutdown. The absence of this data compels the Fed to maneuver policy with partial insights, thereby presenting an unusual opportunity for the euro to appreciate, even in light of Europe’s sluggish growth trajectory.
The European Central Bank is currently maintaining its position after a series of assertive remarks from prominent officials. ECB Governing Council member Gediminas Simkus indicated that “no further cuts are required,” noting that inflation is “near target” at 2.1%. Meanwhile, Isabel Schnabel emphasized that monetary policy must remain restrictive “for longer” to avert a resurgence of wage-driven inflation. The statements indicate a constrained downside for the euro and have tempered expectations regarding any potential easing by the ECB in early 2026. The yield differential between the U.S. 10-year Treasury (4.17%) and German Bund (2.32%) has narrowed to 185 basis points, marking the lowest level since May. The compression of that spread has supported the euro, maintaining the EUR/USD well above the 1.1600 threshold. European political risk is slightly elevated — the French National Assembly’s narrow 13-vote passage of the Social Security bill highlighted policy fragility but did not lead to a significant market exodus from the euro. The JOLTS Job Openings report exceeded expectations, recording 7.67 million openings compared to the anticipated 7.14 million, nearly aligning with the previous month’s figure of 7.66 million. This reading indicates persistent tightness in the labor market, which complicates the Federal Reserve’s narrative surrounding disinflation. Nonetheless, the ADP employment change showed a lackluster performance at +4.8K, whereas the Employment Cost Index remained unchanged at 0.8%, indicating a deceleration in wage growth. Market participants anticipate that Powell will navigate these indicators with precision — an overly dovish stance might ignite a fresh euro rally past 1.17, whereas an unanticipated hawkish shift could drive the pair back toward 1.1550. The NFIB Small Business Index has risen to 99.0, up from 98.2, indicating that while inflation has softened, U.S. businesses continue to exercise caution regarding hiring and credit conditions.
The EUR/USD pair is maintaining its position within a clearly defined ascending channel, currently facing immediate support at 1.1605 and encountering key resistance at 1.1663. The RSI is currently at 48, indicating subdued momentum while suggesting a preference for consolidation over a breakdown. The 20-day EMA is currently positioned at 1.1620, with the pair fluctuating around this level since the beginning of the week. A daily close above 1.1664 would technically indicate a bullish breakout, paving the way toward 1.1720, and subsequently 1.1780 — the swing high for October. On the other hand, a drop below 1.1600 reveals potential targets at 1.1579 and 1.1555, which correspond with the 200-day moving average and establish the lower limit of the structural support area. This week’s price action has established a double-bottom pattern around 1.1618, indicating a reinforcement of near-term bullish potential. A rise above 1.1664 would indicate a short-term reversal, whereas continued weakness below 1.1605 would disrupt the pattern and reveal greater downside potential towards 1.15. The DXY’s stabilization around 99.25 underscores the dollar’s short-term vulnerability. In light of a slight recovery following the JOLTS report exceeding expectations, the prevailing sentiment continues to lean towards additional weakness as market participants await Powell’s forthcoming guidance. A close beneath 99.13 would indicate a confirmed downtrend, whereas a breakout above 99.56 might propel recovery towards 99.81. This movement is directly linked to the direction of EUR/USD — every pullback in the DXY typically results in the euro appreciating by 0.3%–0.5%.
The strength of the Euro is bolstered by declining U.S. real yields, with inflation expectations stabilizing around 2.4% and nominal yields decreasing. The dollar’s failure to strengthen despite mixed data indicates a significant shift in sentiment: investors are preparing for a 2026 alignment of rates between the Fed and ECB, which diminishes the dollar’s carry advantage. CFTC data indicates that net long EUR futures positions have increased for the fourth consecutive week, currently amounting to 38,500 contracts, marking the highest level since April. This buildup occurs as traders reduce their long-dollar positions that have been established throughout 2023–2024. Institutional accounts are said to be shifting their allocations into euro-denominated debt and utilizing options for hedging, with 1.1600 identified as the critical pivot point in the options market. The 1.1650 call strike saw a 22% increase in open interest week-over-week, indicating heightened expectations for upward momentum as we approach year-end. Simultaneously, there has been a notable increase in corporate hedging activity within the eurozone, driven by uncertainty surrounding U.S. fiscal policy and the potential reintroduction of tariffs from the Trump administration. This dynamic underpins structural demand for euros, constraining downside risks even in the face of potential short-term volatility following the Fed meeting.
Important forthcoming events consist of the FOMC statement, Powell’s press conference, and the publication of Economic Projections, which will detail the rate trajectory for 2026. In Europe, attention shifts to the ECB Bulletin and the final readout of German CPI, anticipated to affirm a 2.3% YoY inflation rate. Any deviation from the target could swiftly adjust ECB expectations. Meanwhile, geopolitical factors are still at work — the euro’s responsiveness to energy markets is reemerging as Brent crude holds steady at $58.30, and any developments in Ukraine negotiations could impact trade sentiment and currency relationships. At current levels near 1.1622, EUR/USD indicates a market in transition rather than aimless fluctuation. The interplay of Fed rate cuts, ECB restraint, and narrowing yield spreads creates an environment conducive to a medium-term bullish rotation, contingent on Powell steering clear of a hawkish pivot. Technical confirmation above 1.1664 would shift bias decisively bullish, targeting 1.1720–1.1780. Conversely, sustained pressure under 1.1600 would flip sentiment bearish toward 1.1550–1.1500. Considering the current data and market positioning, the risk-reward scenario suggests that maintaining EUR/USD long positions ahead of the Fed meeting is advantageous. This is further supported by the dollar’s inherent weaknesses and the prevailing uncertainties surrounding Fed policy, which enhance the potential for upside movement.