EUR/USD Stays Strong at 1.1565—Will the Fed Trigger a Break Above 1.1630 or Force a Retreat Below 1.1500?

EUR/USD Holds Above 1.1560 as Fed Caution and ECB Hawkish Tone Collide

The EUR/USD pair is struggling to maintain momentum after peaking last week at 1.1630, its highest level since October 2021. The pair opened the week with mild downside pressure, briefly dipping under the 1.1550 handle during the Asian session, before rebounding on improved risk sentiment. Despite Friday’s geopolitical sell-off triggered by Iranian missile strikes on Israel and retaliatory bombings on Iranian military targets, the euro held firm through Monday’s European session, reflecting investor belief that a broader conflict may be avoided. The pair is currently consolidating around 1.1565 as markets brace for Wednesday’s Federal Reserve policy decision and updated economic projections.

FOMC Meeting Looms as Market Bets on September Rate Cut

Traders are pricing in a 62% probability of a rate cut by September, according to CME’s FedWatch Tool, yet the Federal Reserve is expected to stand pat at 4.50% this week. What matters is not the rate decision, but the revised dot plot, forward guidance, and Powell’s tone during the press conference. A dovish pivot could drive EUR/USD above the multi-year resistance at 1.1630, with bulls then targeting 1.1657 and potentially 1.1700. On the flip side, any sign the Fed intends to delay cuts until late 2025 could trigger downside pressure toward 1.1511 and the lower boundary of the ascending trendline near 1.1430.

ECB Pushback on Rate Cuts Fuels Euro Strength Against Softening Dollar

The European Central Bank is presenting a notably different stance. Comments from ECB’s Nagel Monday indicated that the bank is in no rush to cut rates despite heightened uncertainty. He emphasized that the ECB’s inflation objectives have been largely met but stopped short of endorsing a summer easing, reinforcing euro support. Market sentiment sees the Fed closer to cutting than the ECB—a reversal from 2022–2023 dynamics—and that’s underpinning EUR/USD’s broader uptrend. The pair has now formed three consecutive higher weekly closes and remains inside a bullish ascending channel on the daily timeframe.

EUR/USD Technical Structure Supports Further Upside But Overbought Risk Grows

Technically, EUR/USD is supported at 1.1510, with trendline and 50-day EMA convergence near that level acting as a strong floor. The pair bounced cleanly off this zone on Friday, confirming it as critical short-term support. Resistance continues to stack between 1.1615 and 1.1630, where a large bearish pinbar formed late last week, signaling seller presence. Above that, a break and hold over 1.1655–1.1660 would activate a broader leg higher toward 1.1700. The RSI is currently hovering near 65, suggesting upside remains but warning of an overbought condition. As long as the pair holds above 1.1500, bulls remain in control, but risk of a short-term correction is increasing.

DXY Trends Lower as Euro Outperforms Amid Diminishing Dollar Yield Appeal

The U.S. Dollar Index (DXY) continues to trend lower, now testing support around 97.94, with resistance firm at 98.36. Repeated failures to break through the 50-day EMA at 98.42 suggest that the dollar remains under pressure as expectations for easing build. Without a hawkish Fed catalyst, DXY risks slipping toward 97.60 or even 97.30, further clearing the path for EUR/USD to grind higher. Unless the Fed surprises with sharp upward revisions in growth or inflation forecasts, the greenback is unlikely to find significant tailwinds this week.

Geopolitical Risk Fades, Risk Appetite Returns—But EUR/USD Traders Stay Cautious

The geopolitical shock from Friday’s missile exchanges between Israel and Iran rattled markets, yet the reaction in EUR/USD was muted. With European equities opening higher and U.S. futures stabilizing Monday, investors appear to be pricing in a diplomatic de-escalation. President Trump’s statement urging both countries to pursue peace helped ease pressure. That said, risk assets remain sensitive, and any re-escalation could renew demand for the dollar, pushing EUR/USD back toward the 1.1440–1.1430 support zone. The euro’s strength remains vulnerable to headline shocks, especially if safe-haven flows return to the dollar in force.

Retail Sales, Fed Projections, and Philly Fed to Set the Next EUR/USD Move

The economic calendar this week is front-loaded with U.S. retail sales data on Tuesday, expected at 0.1% headline and 0.2% core. A downside miss could accelerate rate-cut bets and push EUR/USD back toward its recent highs. Wednesday’s FOMC event will dominate attention, but Thursday’s jobless claims and Philly Fed Manufacturing Index could further influence short-term direction. If macro data confirms a slowdown in consumption and factory activity, the euro may strengthen further as the dollar softens.

EUR/USD Bias Remains Bullish Above 1.1510, But RSI Caution Flags Retracement Risk

Price action on the 4-hour chart shows the 20-SMA acting as solid support, while recent rejection near the 1.1632 high confirmed strong resistance. The pair is currently boxed between these levels, with a breakout on either side likely to trigger the next significant move. The RSI climbing toward overbought territory at 65 hints that momentum may pause. Still, the broader uptrend remains intact unless EUR/USD loses the 1.1500 handle with strong conviction, which could invite a retest of 1.1460 and even 1.1410 on further weakness.

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