EUR/USD Price Forecast - Euro to Dollar Extends Gains to 1.1655 and Weakness Lift Euro

EUR/USD Holds Firm Above 1.1650 as Dollar Weakens on Fed Cut Bets and Political Risks

The EUR/USD pair is regaining momentum, trading near 1.1655, as the euro extends its rebound amid a weakening U.S. dollar and a decisive shift in market expectations toward Federal Reserve rate cuts. After bottoming near 1.1540, the pair broke through key resistance at 1.1630, confirming a double-bottom reversal pattern that signaled the end of its recent downtrend. The neckline breakout, supported by improving momentum and strong participation from European buyers, suggests that the euro is regaining its footing after weeks of defensive trading. The 50-day EMA at 1.1633 has now turned from resistance into support, while the 200-day EMA near 1.1679 serves as the next critical barrier. A clean daily close above 1.1680 could set the stage for an extended move toward 1.1720 and 1.1778, reinforcing a short-term bullish bias.

The macro backdrop amplifies the bullish tone for EUR/USD. The U.S. Dollar Index (DXY) has fallen to 98.60, a one-week low, marking its third consecutive day of losses as traders nearly fully price in two 25-basis-point rate cuts — one expected in October and another in December. The dovish stance has been reinforced by the Fed’s Beige Book, which revealed slower economic growth, weak labor market data, and rising input costs. These findings fueled the narrative that the central bank’s next moves will prioritize stability over inflation containment. CME FedWatch currently shows a 94.6% probability of a rate cut to the 3.50%-3.75% range before year-end, weakening the dollar’s yield advantage against the euro.

Fed Easing Bets and Political Uncertainty Deepen Pressure on the Greenback

The decline in the U.S. dollar is not solely monetary—it’s also political. The prolonged U.S. government shutdown, now entering its third week, has compounded investor uncertainty. The standoff over federal funding and spending priorities has raised concerns about potential rating downgrades and fiscal gridlock in Washington. Historically, such episodes have weakened dollar demand as investors seek stability in alternative currencies, and the euro has become one of the prime beneficiaries.

Moreover, renewed U.S.-China trade frictions are undermining global risk sentiment. President Trump’s 100% tariff announcement on Chinese rare earth exports and Beijing’s retaliatory remarks have reignited fears of a prolonged trade standoff. This escalation comes at a time when the Fed is signaling policy easing, creating a perfect storm of factors driving capital away from the dollar. Traders are rotating toward assets with perceived lower political exposure—most notably the euro and gold, both of which have posted sharp gains in recent sessions.

Technical Structure Signals a Potential Trend Reversal Toward 1.18

From a technical lens, EUR/USD shows signs of a confirmed bullish reversal. The pair has not only reclaimed the neckline of the double-bottom formation at 1.1630 but also broken above the descending channel that constrained price action since late September. The Relative Strength Index (RSI) has climbed to 59, reflecting renewed buying interest but still shy of overbought territory, allowing for further upside without significant resistance. A sustained move above 1.1680 would likely invite momentum traders targeting 1.1730, with 1.1800 emerging as the ultimate short-term resistance level.

Moving averages are converging, a technical signal often preceding trend transitions. The 100-day SMA, currently below the 200-day SMA, indicates that bearish pressure is fading. The narrowing gap between these two moving averages implies a potential bullish crossover, reinforcing expectations for a medium-term trend reversal. Momentum oscillators echo this outlook: while the Stochastic indicator hovers near overbought territory, it remains stable, suggesting sustained buying strength rather than exhaustion.

Eurozone Fundamentals Strengthen as Divergence with the U.S. Expands

Beyond charts, the euro is drawing strength from relative macro stability. The European Central Bank (ECB) has maintained a neutral stance, signaling patience rather than panic amid inflation normalization. The eurozone economy, while not robust, continues to outperform expectations in sectors like industrial output and services resilience. This divergence from the U.S.—where growth is visibly decelerating—has narrowed interest rate differentials and improved the euro’s appeal.

Data from the Eurostat industrial index and recent surveys indicate that consumer sentiment in key economies such as Germany and France has improved modestly for the first time in four months. As a result, speculative positioning against the euro has moderated. Institutional flows are shifting back into euro-denominated assets, a dynamic evident in the EUR futures market, where net shorts have declined nearly 15% since early October. This unwind of bearish bets suggests that traders are no longer confident in the dollar’s ability to sustain its dominance.

Dollar Index Weakness Confirms Macro Shift in Market Positioning

The Dollar Index (DXY) remains the central mirror of global sentiment. Trading near 98.58, it is consolidating below its short-term trendline and faces resistance at 98.77 (50-EMA) and 99.00, with support at 98.20 and 98.03. A decisive break below this zone could open the path toward 97.25, marking a deeper correction phase for the dollar. The RSI on the DXY sits near 38, reflecting weak momentum as sellers retain control.

With the 200-EMA at 98.24 acting as a critical pivot, traders are watching for whether the index can stabilize above that level. Failure to do so would reinforce a medium-term bearish bias for the dollar, indirectly supporting further appreciation in EUR/USD. A rebound above 98.77, however, could temporarily delay the euro’s advance, although fundamentals currently weigh heavily in favor of continued dollar softness.

Market Psychology and Policy Watch: Traders Await ECB and Fed Speakers

Market psychology has shifted from fear of inflation to fear of stagnation. The euro’s current rally is being driven by expectations that both central banks will pivot—but the Fed may do so sooner and more aggressively. Investors now await speeches from key policymakers at both institutions. Comments from ECB President Christine Lagarde are expected to reaffirm a data-dependent stance, while Fed Vice Chair Jefferson and Governor Bowman are anticipated to emphasize labor softness and credit tightening, reinforcing the case for further cuts.

The correlation between policy guidance and rate expectations remains tight: each 25-basis-point cut priced in by markets tends to translate to an additional 0.5% appreciation in EUR/USD. Should officials validate the market’s current pricing, the pair could push beyond 1.1750 within days.

Outlook: EUR/USD Eyes 1.18 as Bullish Momentum Builds

With the U.S. dollar under structural and political pressure, and the euro gaining technical and macro support, the balance of risk for EUR/USD remains skewed to the upside. The critical levels to monitor include 1.1630 as support, 1.1680 as the breakout threshold, and 1.1778–1.1800 as near-term targets. A sustained close above 1.1800 would confirm a broader trend shift, aligning with the softening U.S. data and deepening market conviction in the Fed’s dovish pivot.

The euro’s resilience in the face of U.S. political gridlock and the dollar’s technical breakdown underscores a fundamental rotation in global capital flows. For now, EUR/USD remains bullish, with traders maintaining a Buy Bias as long as price action holds above 1.1600 and momentum continues to strengthen toward the 1.18 handle.

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