EUR/USD Price Forecast: And now what?
- EUR/USD rapidly deflates to two-week troughs south of 1.1600.
- The US Dollar jumps to two-week highs following the FOMC gathering.
- The Federal Reserve lowered its rates by 25 bps on Wednesday.
EUR/USD snapped its winning streak on Wednesday, pulling back sharply to revisit the 1.1580–1.1570 area, its lowest in two weeks.
The sharp downtick came as the US Dollar (USD) roared back to life, pushing the US Dollar Index (DXY) to a two-week high near 99.40. Furthermore, US Treasury yields climbed across different time frames, reinforcing the Greenback’s rebound.
Shutdown drags on, nerves fray
The prolonged government shutdown in Washington is starting to bite. Nearly a month in, lawmakers are still locked in a stalemate. On Tuesday, Senate Democrats blocked the Republicans’ short-term funding bill in a 54–45 vote, falling short of the 60 needed to keep the government funded through late November.
The economic costs are mounting. Hundreds of thousands of federal employees remain unpaid, public services are stalling, and business confidence is slipping. Those effects are beginning to show up in hiring and GDP figures, both of which are flashing early warning signs.
In the meantime, at 29 days and counting, this is now the second-longest shutdown in US history. If it stretches past November 5, it’ll break the record outright.
Trade thaw lifts sentiment
After months of friction, the US–China trade saga seems to be turning a corner. Over the weekend, top negotiators from both sides hammered out a framework agreement that could lead to a broader deal when Donald Trump and Xi Jinping meet later on Thursday.
Here’s what’s reportedly on the table so far:
• Tariffs cooling off: Treasury Secretary Scott Bessent says the deal would avert the 100% tariffs the US had threatened on Chinese goods.
• Rare earth reprieve: Beijing is expected to hold off on new export controls for rare-earth minerals and magnets, a welcome relief for global manufacturers and tech firms that rely on those materials.
• Farm relief: China looks set to resume large-scale purchases of US soybeans, finally bringing some good news to American farmers who’ve been caught in the crossfire of the trade war.
• Wider cooperation: Negotiators are also tackling some tricky topics, from TikTok’s ownership and data rules to fentanyl precursor controls and efforts to make supply chains more resilient.
Markets have taken the progress in stride, though investors know the real test will come when Trump and Xi decide whether to formally sign off.
Fed takes a cautious step
A divided Federal Reserve (Fed) cut interest rates by a quarter point on Wednesday and said it would restart small-scale Treasury purchases to ease recent money market strains, a signal that liquidity has tightened more than the Fed would like.
The 10–2 vote to lower the policy rate to 3.75%–4.00% was widely expected. Officials described the move as insurance against a cooling labour market.
In his press conference, Fed Chair Jerome Powell acknowledged that policymakers remain split on what to do next. He warned that markets shouldn’t wait for another rate cut in December, reflecting the ongoing uncertainty within the Federal Open Market Committee (FOMC).
Following the meeting, markets are pricing in around 17 basis points of further easing by year-end and just over 83 basis points by the end of 2026.
ECB stays patient
Over in Europe, the European Central Bank (ECB) meets on Thursday and is expected to keep rates on hold, maintaining its steady, data-driven stance.
At its last meeting, officials reiterated that inflation should gradually edge toward target, with core inflation seen at 2.4% in 2025, 1.9% in 2026, and 1.7% in 2027.
President Christine Lagarde sounded confident, saying policy is “in a good place” and that risks are now more balanced. Any next move, she stressed, will depend entirely on incoming data.
Meeting minutes struck a slightly brighter tone, showing policymakers a bit more upbeat on growth and in no rush to ease further.
Markets seem to agree: pricing just over 13 basis points of cuts by the end of 2026, reinforcing the idea that the ECB’s easing cycle may be over.
Tech corner
EUR/USD maintains its broader consolidative phase as we enter the latter part of the year.
Bulls face a minor hurdle at the weekly high at 1.1728 (October 17), ahead of the October peak at 1.1778 (October 1). In case of further upside impulse, the pair could refocus on the 2025 ceiling of 1.1918 (September 17), prior to the 1.2000 threshold.
On the flip side, there is immediate contention at the October base at 1.1542 (October 9, 14), while a deeper pullback could put the August trough at 1.1391 (August 1) back on the radar ahead of the significant 200-day SMA at 1.1306. Further down comes the weekly low at 1.1210 (May 29).
Looking at the broader picture, the pair’s outlook should remain unchanged as long as it trades above its key 200-day SMA.
In the meantime, momentum indicators lose momentum: the Relative Strength Index (RSI) drops to nearly 42, exposing renewed selling interest, while the Average Directional Index (ADX) hovering around 14 suggests that the ongoing trend remains weak.
EUR/USD daily chart
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Waiting for something, or someone
EUR/USD remains mired in its ground, but the market is still searching for direction. A dovish shift from the Fed, fading appetite for US assets, a cautious-for-longer ECB, or genuine progress on trade could finally give the European currency the push it’s been waiting for.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
