EUR/USD Price Breaks Above $1.18 as Fed Cut Bets Ignite Rally Toward 1.20

EUR/USD Breaks Above 1.1800 as Fed Cut Bets Dominate

The euro surged past $1.1800 against the U.S. dollar, marking its strongest level since early July, as markets locked onto the Federal Reserve’s two-day policy meeting. EUR/USD traded as high as $1.1818 before consolidating near $1.1800, driven by mounting bets on a September rate cut. Futures markets are fully pricing a 25-basis-point move, with a minority of traders eyeing a deeper 50-point cut. Deutsche Bank projects the federal funds rate could fall to 3.50%–3.75% by year-end after three consecutive reductions, aligning with the market’s increasingly dovish expectations.

Dollar Weakness Undermines Support as Retail Sales Data Loom

The U.S. Dollar Index (DXY) slipped to 97.20, a three-week low, losing 0.28% on Tuesday’s session. Despite August retail sales climbing 0.6% versus the 0.3% consensus, the stronger data failed to lift the Greenback. Investors instead leaned on expectations of a looser Fed policy path. With the Fed’s benchmark rate currently at 4.33%, traders anticipate as much as 150 basis points of cuts through the end of 2026, suggesting further erosion of the dollar’s yield premium. Powell’s press conference following the FOMC decision is now seen as the key trigger for the next breakout in EUR/USD.

European Resilience: ZEW Sentiment and Industrial Output Surprise

Europe added fuel to the bullish case for the single currency. Germany’s ZEW Economic Sentiment Index climbed to 37.3 in September, well ahead of forecasts for 27.3, marking its second consecutive monthly improvement. Eurozone sentiment also brightened, rising to 26.1 from 25.1 despite expectations of a decline. Industrial production in the bloc rose 0.3% in July after a 1.3% drop in June, with year-over-year growth accelerating to 1.8%. These figures suggest a more resilient economy than markets had priced in, cushioning the euro despite lingering fiscal concerns such as Fitch’s downgrade of France to A+.

Technical Setup Points Toward 1.1830 and 1.20

From a technical standpoint, EUR/USD is consolidating above $1.1790, breaking through the ceiling that has repeatedly capped advances since late August. The July 24 high at $1.1790 has turned into support, while immediate resistance sits at $1.1830, followed by a broader psychological barrier at $1.2000. The RSI at 66 shows momentum remains bullish without hitting overbought extremes. Price action has been supported by the ascending trendline from September lows, while the 50-day EMA at $1.1736 and 200-day EMA at $1.1698 provide strong underpins. A Fibonacci extension from the late August rally points to $1.1885 as the next upside target if buyers clear $1.1830 convincingly.

Fed Politics and Independence Questions Add Risk Premium

Political developments surrounding the Federal Reserve are adding a unique twist to the outlook. The U.S. Senate confirmed Stephen Miran, a Trump economic ally, to the Fed Board, sparking speculation that policy could face political influence. At the same time, an appeals court blocked efforts to remove Governor Lisa Cook, preserving institutional continuity. This tension between political pressure and central bank independence could add volatility to EUR/USD, particularly if Powell’s guidance fails to reassure markets about policy autonomy.

Trading Dynamics: Stairs Higher With Breakout Potential

Market behavior around EUR/USD is likened to a staircase climb: higher lows since early September and a bullish channel guiding price toward 1.1863. A confirmed break above $1.1810 unlocks resistance at $1.1838, then $1.1863. On the downside, failure to hold above $1.1750 exposes support at $1.1723 and 1.1700. Technical indicators show room for further upside, with a “three white soldiers” candlestick pattern suggesting continuation rather than exhaustion. Traders are positioning for momentum trades, buying dips toward $1.1750 with targets at 1.1830 and higher.

Short-Term Outlook: Bullish Bias Holds

With the Fed expected to cut rates for the first time in nine months and the ECB signaling its cycle is near a pause, the divergence is heavily tilted in favor of the euro. The balance of risks suggests EUR/USD could test $1.1830 in the near term, with a decisive dovish tone from Powell paving the way toward $1.20. A more cautious Fed, however, risks disappointing markets and could briefly lift the dollar, stalling the euro’s advance. Overall, based on data, technicals, and central bank dynamics, EUR/USD maintains a bullish bias with a Buy rating, targeting $1.1830 near term and $1.20 medium term.

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