EUR/USD traded at 1.1196 at 14:40 on Tuesday, October 13, 2026, reflecting an increase of 36 pips or 0.32% from the previous day’s close of 1.1160. The session range has fluctuated between 1.1153 and 1.1203. The pair commenced at 1.1155 in Asia, steadily ascended during the European morning to reach 1.11875 by 08:03 and 1.1189 by 12:29, ultimately surpassing 1.1200 in the early New York trading session. The rebound comes after the most disappointing report of the year. On Monday, October 12, the euro declined to 1.1150 during trading in New York, dipping below the October 5 low of approximately 1.1160 and marking its weakest position since May 2025. That represented a 17-month low, recorded during a Columbus Day session when U.S. cash bond markets were closed. On Monday, the daily candle exhibited a range from 1.1218 to 1.1152, ultimately closing at 1.1160, reflecting a decline of 0.39%. The decline has been unyielding. EUR/USD closed at 1.1449 on September 22, at 1.1330 on September 30, and then experienced a decline of 0.78% on October 1, finishing at 1.1242. Last week, the pair recorded lower highs at 1.1277 on October 6, 1.1243 on October 9, and 1.1217 early on October 12, forming a three-step staircase leading into Monday’s low. The 2026 high stands at 1.2067, while the six-month high reached 1.1808 on April 16. At 1.1196, the euro stands 7.2% beneath its annual peak and has declined by 3.5% over the past year.
That establishes the context for this projection. The euro is significantly oversold, with short positioning reaching its highest levels since December 2024. The recent decline on Monday can be attributed to movements in the dollar rather than any new developments specific to the euro. These represent the criteria for a pronounced countertrend squeeze. Against that backdrop, the rate differential continues to favour the dollar by 150 basis points, with market expectations indicating another rate hike by the Fed in December, while the trend of lower highs remains firmly established. The thesis is specific: Wednesday’s September U.S. CPI report is scheduled for release at 8:30 a.m. assesses whether Tuesday’s rebound will evolve into a short squeeze or merely a dead-cat bounce. A soft core print enters a market that is significantly short on the euro, propelling EUR/USD past 1.1224 and toward 1.1277. A strong core print rejuvenates expectations for an October Fed rate hike, propelling the pair past 1.1150 and steering it toward the 1.1087 low observed in May 2025. The two central bank decisions that follow intensify the stakes. The Federal Reserve will make its announcement on October 28, followed by the European Central Bank on October 29. Every data point this week contributes directly to the relative pricing of those two meetings. The most significant aspect of Monday’s decline to 1.1150 is what did not occur. The French-German 10-year bond spread, a significant indicator of the euro’s stability, was holding steady around 137 basis points on Monday, following a period of heightened tension through late September. French bonds exhibited stability. The euro experienced a decline regardless of other factors.
The impetus originated from the opposing side of the duo. Cleveland Fed President Beth Hammack articulated in a speech and interview on October 12 the necessity for the Fed to transition expeditiously toward a more restrictive monetary policy. She emphasised that inflation has become increasingly widespread and noted that investments in AI, along with wealth effects, are contributing to ongoing price pressures. She expressed a preference for smaller adjustments implemented promptly rather than a significant correction occurring later, while maintaining an open perspective regarding the upcoming October meeting. Oil contributed to the dollar’s demand. WTI crude concluded Monday with an increase exceeding 1.60%, reaching $93.17 per barrel, as ongoing tensions in the Strait of Hormuz and uncertainties regarding a ceasefire between Russia and Ukraine concerning energy infrastructure sustained concerns about supply. Increased oil prices contribute to rising inflation expectations in the United States, which in turn influence the likelihood of Federal Reserve interest rate hikes, subsequently impacting the value of the dollar. EUR/USD was observed around 1.1155, reflecting a decline of 0.40% as the New York session drew to a close. The dollar index concluded Monday’s trading session at a range of 102.41 to 102.55, maintaining proximity to an 18-month peak. The DXY has maintained a position above 102.10 as it approaches the CPI, with 102.61 identified as the subsequent target for upward movement.
This attribution is significant for the forecast. If Monday’s low had stemmed from a new surge in French spreads, the euro’s weakness would possess an intrinsic driver that U.S. data could not rectify. Due to its origins in Federal Reserve rhetoric and oil market dynamics, the trajectory of the euro this week is contingent upon U.S. inflation data. A softer CPI addresses the specific factor that led to the 17-month low. Tuesday’s recovery underscored that assessment. The dollar exhibited a weakening trend during the early hours of U.S. trading, while the yield on the 10-year Treasury note declined by 2 basis points to 5.22%. Concurrently, oil prices experienced a retreat, with WTI falling by 2.09% to $91.78 at one stage, following the Trump administration’s temporary relaxation of restrictions on Russian diesel supplies for a duration of six months. The EUR/USD experienced an upward trajectory with each of those developments. The euro is currently reflecting the movements of the dollar, rather than being driven by its own underlying fundamentals. The broader dollar complex substantiates this observation. GBP/USD was observed at 1.32327 early Tuesday, with attention on a potential triangle breakout around 1.3284, while AUD/USD experienced a decline as the stronger dollar overshadowed a hawkish stance from the Reserve Bank of Australia. When sterling, the Australian dollar, and the euro all respond to the same U.S. economic indicators, the narrative centers on the dollar.
The fundamental factor contributing to the decline of EUR/USD since September is the disparity in policy rates. Both central banks have been increasing rates in 2026 as a reaction to the energy shock stemming from the Middle East conflict; however, the Fed is more advanced in this process and is accelerating its pace. The Fed raised the federal funds rate range by 25 basis points to 3.75%-4.00% on September 16, marking its first hike since 2023. That action initiated the decline of the euro from levels exceeding 1.16. Fed funds futures currently indicate a 21% likelihood of an additional rate hike at the meeting on October 28, with an 88% probability of such a move by December. Other readings indicate that the odds for October stand at 19%, while those for December are at 85%. As of October 5, the October odds were recorded at 23.8%, a decline from 70.9% the previous week following the release of soft U.S. jobs data, whereas the December odds were noted at 86.8%. The ECB raised its deposit facility rate by 25 basis points to 2.50% on September 10, effective September 16. That marked the second increase of 2026, elevating the rate from 2.00% to 2.25%, and subsequently to 2.50%. The deposit rate reached its zenith at 4.00% in September 2023, subsequently experiencing eight reductions that lowered it to 2.00%. The ECB raised its 2027 inflation forecast to 2.5% from 2.3% at the September meeting, with President Christine Lagarde emphasising that future decisions will be contingent upon data reviewed at each meeting.
The upper bound of the Fed’s range at 4.00% compared to the ECB’s 2.50% creates a 150-basis-point differential that favours the dollar. That represents the carry an investor accrues by maintaining a position in dollars rather than euros at the short end. For a pair that trades heavily on rate expectations, a 150-basis-point spread with the Fed anticipated to widen it in December serves as a significant anchor. The ECB side has been experiencing a decline in its hawkish premium. Futures pricing on September 24 indicated an approximate 60% probability of the ECB raising rates to 2.75% on October 29. Following the September meeting, money markets had factored in approximately 60 basis points of further tightening by the ECB by April 2027. Since then, as French spreads widened, money markets scaled back ECB tightening bets, even after flash euro-area inflation came in at 3.8% year on year in September. Concerns regarding the potential for fiscal stress in France to compel the ECB to halt its interest rate increases after December, or even earlier should the stress proliferate, have diminished support for the euro. That is the asymmetry influencing the pair. Pricing for a U.S. rate hike has remained steady at 85% to 88% for December. The pricing for ECB hikes has diminished. The divergence between the anticipated trajectories of the two central banks has expanded in favour of the dollar, despite the European Central Bank also implementing tightening measures. A subdued U.S. CPI serves as the most evident catalyst for a contraction in this context.
