The fundamental configuration in EUR/USD features a 2.0% ECB deposit rate maintained, juxtaposed with a Fed that recently experienced a headline CPI decline to 2.7% year-on-year, compared to a consensus of 3.1%. The interplay of these factors diminishes the strength of the USD narrative, particularly as the ECB indicates that its current policy stance is sufficiently restrictive and is expected to remain so. The trading range of 1.1740–1.1750 illustrates this equilibrium: Euro policy remains stringent, US inflation is easing, and there are no pressing factors to trigger a significant increase in the dollar. The markets indicate that the Fed remains approximately 50 to 100 basis points above neutral, yet there is no immediate pressure to implement cuts in January. Meanwhile, the ECB appears content at 2.0% and is conveying the notion that rates can remain stable through 2026. The European Central Bank is anticipated to maintain the deposit rate at 2.0%, with minimal expectations for any adjustments during the upcoming meeting. Revised forecasts indicate that inflation is expected to hover around 1.7% in 2026 and 2027, lending credence to the dovish perspective that reductions will be necessary in the future.
However, these same projections reveal that inflation is anticipated to exceed the target by 2028, attributed to postponed carbon pricing and ongoing structural pressures. The growth rate exceeding 1% in 2025 provides justification for proponents of tighter monetary policy to assert that the Eurozone can sustain elevated interest rates for an extended period. If Christine Lagarde emphasizes resilience and reiterates that policy is in a “good place” with no urgency to cut, this scenario supports EUR/USD remaining above 1.1700 and aiming for 1.1800 initially, followed by the 1.1919 peak from September 2025, and potentially reaching the 1.2000 round number if US data continues to disappoint, as seen with the 2.7% CPI print. The recent CPI release is crucial for the USD component in the EUR/USD pair. Headline inflation stands at 2.7% year-on-year, a decrease from the previous 3.0% and below the expected 3.1%, indicating a continued easing of price pressures rather than a resurgence. The Core CPI hovering around 3.0% remains elevated for the Federal Reserve’s preferences, yet it does not present any potential for an upside surprise.
The distortion caused by the government shutdown has resulted in the omission of the October CPI, while the November data is presented solely in annual rates. This ensures that the Federal Reserve will not overreact to any single data point. For markets, the direction is crucial: a softer 2.7% figure brings the Dollar Index down below approximately 98.50, weakening the case for a stronger USD as we approach year-end. Federal Reserve officials, including Christopher Waller, recognize that interest rates remain elevated relative to neutral levels and that the labor market is showing signs of softening. However, with only a slight chance of a rate cut in January and March appearing to be the more plausible timeframe for easing, the dollar is shedding the “policy panic” premium it had maintained earlier this year. Throughout the intraday movements, the EUR/USD activity reflects a consistent narrative: strong demand near 1.1700, while supply remains managed around 1.1800. The pair has already encountered the 1.1700 level multiple times, and on each occasion, buyers have intervened, pushing the price back toward the 1.1740–1.1750 range by the close of the US session.
That behavior indicates consolidation rather than a peak. Market participants regard 1.1700 as the primary short-term pivot point, while the range of 1.1750–1.1800 serves as the operational resistance zone leading up to the two-month peak at 1.1804. Provided that spot maintains its position above 1.1700 and shows resilience with rebounds from any dips into the low-1.17s, the prevailing market conditions support buy-the-dip strategies over breakout shorts. Currently, EUR/USD is exhibiting an ascending channel on both the four-hour and daily charts, characterized by a pattern of higher highs and higher lows since the last significant low around 1.1589. The current level between 1.1740 and 1.1750 is positioned above a climbing 9-day EMA near 1.1715 and well above the 50-day EMA around 1.1644. The broader support area between 1.1650 and 1.1685 aligns with key moving averages and prior resistance, forming a critical structural base. While Eurozone growth concerns and softer data explain repeated rejections below 1.1800, as long as 1.1700 and especially 1.1650 hold, sellers lack the follow-through needed to invalidate the prevailing bullish consolidation structure.