EUR/USD tests double-bottom neckline as macro divergence looms

Key takeaways

• Price Action: EUR/USD is trading around 1.1629, challenging the double-bottom neckline at 1.1630 on the 4H chart. A confirmed breakout could signal a reversal toward 1.1654 → 1.1685 → 1.1718, while rejection would preserve the broader bearish trend.

• Macro Drivers: German CPI and ZEW surveys show mixed Eurozone sentiment, while US retail sales and PPI later this week will be crucial for Fed policy expectations. ECB officials continue cautious rhetoric; Fed speakers including Powell and Waller remain in focus.

• Strategy: Tactical long bias on a confirmed break above 1.1630 toward 1.1685–1.1718, with stops below 1.1590. Bearish alternative: rejection at neckline followed by retest of 1.1540 on dollar strength.

Market overview

EUR/USD is at a critical technical and macro inflection point, with price testing a key double-bottom neckline around 1.1630 amid a backdrop of mixed Eurozone data and upcoming US macro events that could recalibrate monetary policy expectations.

Mixed Eurozone Data Highlights Uneven Recovery

Recent Eurozone data paints a nuanced picture:

• German CPI (Sep) came in at 2.4% YoY, in line with expectations, reinforcing the ECB’s view that inflation is cooling but remains above target.

• The ZEW Economic Sentiment survey (Oct) showed headline Eurozone sentiment slipping to 22.7 vs. 30.2 expected, and German sentiment at 39.3 vs. 41.2 prior, suggesting investors are turning more cautious about the economic outlook.

• The German Current Conditions index plunged to -80, its lowest since the pandemic shock, highlighting the ongoing structural challenges in Europe’s largest economy.

Bloomberg reported this morning that “investors are losing patience with Europe’s patchy recovery,” while Reuters highlighted that business confidence indicators remain fragile despite disinflation progress. ECB policymakers, including Vice President de Guindos, maintained a cautious tone, warning against premature easing.

Fed in Focus as US Data Looms

On the US side, the narrative is shifting toward resilience in consumer spending and tight labor markets:

• Key events this week include Retail Sales (Thu), expected at +0.6% MoM, and PPI (Thu), expected at -0.1% MoM. Stronger prints could reinforce Fed’s higher-for-longer stance, while softer data would give EUR/USD room to rally.

• Multiple Fed speakers, including Powell, Waller, Bostic, and Bowman, are scheduled throughout the week. Recent comments have emphasized caution but have not signaled imminent cuts.

The divergence between cautious ECB rhetoric and still-resilient US macro data continues to anchor EUR/USD near recent lows, but the double-bottom formation on the chart reflects building bullish pressure, contingent on a fundamental catalyst.

Technical analysis (4H chart)

Current Technical Conditions & Main Scenario

EUR/USD has been in a persistent downtrend since mid-September, dropping from above 1.1750 to a low of 1.1542, where price formed a double-bottom pattern. The subsequent rally has brought the pair back to the neckline at 1.1630, aligning with the swing top of the last leg.

This neckline represents a make-or-break level. A clear break and 4H close above 1.1630 would confirm the double-bottom pattern, opening the door for a measured move toward 1.1654 (127.2% Fib), then 1.1685 (161.8%), with 1.1718 (200%) as the full pattern target — which also aligns with previous structural resistance from early October.

Price is currently testing the WMA at 1.1651, which overlaps with the first Fibonacci extension and adds to the technical weight of this zone. A rejection here would keep EUR/USD capped within its bearish channel.

Oscillators & Market Internals

• MACD: Approaching a bullish crossover, with the histogram turning less negative — indicating momentum is shifting toward buyers.

• MFI (52): Recovered from oversold levels but remains mid-range, signaling steady but not euphoric buying interest.

• Bollinger Bands: Price is testing the upper band after a squeeze, suggesting a potential volatility breakout.

• ATR: Rising from 0.0025 to 0.0028, reflecting building volatility typical of breakout phases.

Key Levels

• Resistance:

  • 1.1630 – Double-bottom neckline / 100% Fib.

  • 1.1654 – 127.2% Fib, overlapping with WMA.

  • 1.1685 – 161.8% Fib, intermediate upside target.

  • 1.1718 – 200% Fib, full pattern projection.

• Support:

  • 1.1596 – 61.8% retracement, immediate pivot.

  • 1.1542 – Pattern base and key downside invalidation.

Main Scenario (Bullish Breakout)

If EUR/USD breaks and closes above 1.1630, technical momentum likely drives price toward 1.1654 → 1.1685 → 1.1718, especially if supported by dovish Fed commentary or soft US retail/PPI data later this week.

This scenario aligns with a classic double-bottom breakout, where neckline breaches often trigger short-covering rallies and fresh buying from technical traders.

Alternative Scenario (Neckline Rejection)

If price fails to break 1.1630 and rolls back below 1.1596, it would signal a false breakout, likely triggering a retest of 1.1540–1.1550. This would align with renewed USD strength on strong US data or hawkish Fed signals.

Fundamental outlook

Eurozone: Stuck Between Disinflation and Weak Growth

The ECB faces a policy dilemma: inflation is cooling toward target, but growth is deteriorating sharply. Industrial production and sentiment data highlight that Germany’s manufacturing recession continues, while ZEW indicators point to broader Eurozone fragility.

Upcoming data this week includes:

• ECB speakers (de Guindos, Lane, Lagarde) who may provide clues on how quickly the ECB is preparing for rate cuts in 2026. So far, the messaging has been data-dependent but cautious.

• Eurozone Trade Balance (Thu) is expected at 12.4B. A stronger trade surplus could offer some fundamental support to EUR by highlighting external strength.

However, structural factors — weak credit growth, tight fiscal policy, and persistent industrial stagnation — limit the EUR’s upside.

US: Retail Sales and PPI to Drive Fed Expectations

The US remains the swing factor for EUR/USD.

• Retail Sales (Thu) are expected at +0.6% MoM. A strong reading would reinforce US exceptionalism, strengthening the USD and potentially rejecting the EUR/USD neckline breakout.

• PPI (Thu) is expected to fall -0.1% MoM. A weak print could soften Fed rate expectations, providing EUR/USD with upside fuel.

• Beige Book (Wed) and multiple Fed speakers will shape the narrative into the weekend. The Fed has so far avoided signaling rate cuts, maintaining a hawkish hold stance.

Policy Divergence Remains Key

• ECB: Cautious, facing weak growth; no imminent cuts but leaning dovish longer-term.

• Fed: Hawkish hold, data-dependent, with consumer resilience underpinning USD strength.

This divergence remains structurally bearish for EUR/USD, but short-term technical corrections are possible if US data disappoints.

Strategic positioning

Base Case (Bullish Breakout)

• Bias: Long on sustained 4H close above 1.1630.

• Targets: 1.1654 → 1.1685 → 1.1718.

• Stops: Below 1.1590.

• Catalysts: Weak US data, dovish Fed tone, stable Eurozone data.

Alternative Case (Rejection & Retest of Lows)

• Trigger: Failure at 1.1630, drop below 1.1596.

• Targets: 1.1550 → 1.1542.

• Catalysts: Strong US retail sales or PPI, hawkish Powell/Waller.

Positioning Context

CFTC data shows EUR net shorts have expanded modestly, reflecting persistent bearish sentiment. A neckline breakout could trigger short-covering, making the upside extension sharper than fundamentals alone might justify.

Trading takeaways

1. EUR/USD is testing a critical neckline at 1.1630, with a double-bottom structure offering short-term bullish potential.

2. A break above 1.1630 targets 1.1654 → 1.1685 → 1.1718, supported by building momentum signals.

3. Macro focus is on US Retail Sales and PPI — potential catalysts for breakout or rejection.

4. Policy divergence remains structurally bearish, but technical corrections can be sharp.

5. Tactical traders should watch for 4H close confirmation and align positions with event risk.

Conclusion

EUR/USD is at a crossroads, both technically and fundamentally. The double-bottom neckline at 1.1630 is the focal point: a breakout could trigger a measured rally toward 1.17, while rejection could send the pair back toward 1.1550 on renewed USD strength.

With key US data and Fed speakers lined up this week, the pair’s direction will hinge on whether US resilience narrative holds or gives way to signs of moderation. Until then, traders should remain tactical, respecting the neckline as the decisive battleground between bulls and bears.