EUR/USD Price Forecast: Bulls lack conviction for now
- EUR/USD exchanges gains with losses in the 1.1650 region on Monday.
- The US Dollar trades in a cautious tone amid trade tensions and US credit risks.
- Investors’ attention remains on flash PMIs and US CPI due on Friday.
EUR/USD remains unable to trade in a clear direction at the start of the week, navigating a consolidative theme in the 1.1650 region following Friday’s marked pullback.
The pair’s erratic tone comes amid the broader indecision in the US Dollar (USD) and mixed US Treasury yields across the curve. That said, the US Dollar Index (DXY) is moving sideways in the 98.50–98.60 band, still trying to build on Friday’s decent advance.
Looking at the broader front, lingering uncertainty over US–China trade tensions is keeping prudence among traders well and sound, while investors wait for fresh clues from upcoming flash PMI releases and US inflation figures due later in the week.
Trade tensions back in the spotlight
US–China relations are once again grabbing market attention. Traders are watching closely to see whether President Trump and China’s Xi Jinping will meet later this month in South Korea, though the relationship still looks fragile.
Beijing’s recent decision to limit rare earth exports drew a sharp response from Washington, with Trump threatening triple-digit tariffs on Chinese goods and reigniting fears of a renewed trade war.
Still, there have been some tentative signs of de-escalation. Treasury Secretary Scott Bessent and China’s Commerce Ministry both said communication channels remain open, hinting at room for compromise and possibly an extension of the current tariff truce.
Fed keeps easing options open
In the US, the Federal Reserve (Fed) is widely expected to cut rates by 25 basis points at its next meeting on October 29.
The September “dot plot” showed a dovish tilt, signalling roughly 50 basis points of additional easing by year-end and smaller adjustments through 2026–27. Growth projections were nudged slightly higher to 1.6%, unemployment was steady at 4.5%, and inflation forecasts were left unchanged.
The latest FOMC Minutes suggest policymakers are keeping the door open for more easing if needed, though there’s no urgency.
Still around the Fed, Chair Jerome Powell acknowledged last week that hiring momentum has slowed, adding that the Fed will continue to take a “meeting by meeting” approach as it weighs softer labour data against still-sticky inflation.
ECB content to stay patient
The European Central Bank (ECB) also kept policy steady at its September meeting, sticking to a cautious, data-driven approach. Officials said inflation should gradually return to target, with core inflation expected to average 2.4% in 2025 before easing to 1.9% in 2026 and 1.8% in 2027.
President Christine Lagarde struck a calm tone, saying policy is “in a good place” and risks look balanced for now. She stressed that any future adjustment will depend entirely on incoming data.
The Account of that gathering echoed that sentiment: measured, but not gloomy. Policymakers sounded slightly more upbeat on euro area growth and saw little reason for extra stimulus, despite lingering uncertainty over US trade policy.
Market pricing currently points to around 23 basis points of easing by the end of 2026, reinforcing markets’ consensus that the central bank is done easing.
Technical picture
EUR/USD’s price action looks unconvincing and unclear.
In case the ongoing recovery picks up a more serious pace, the pair should retarget the October peak at 1.1778 (October 1), seconded by the 2025 high of 1.1918 (September 17), all before the psychological 1.2000 hurdle.
Alternatively, the October floor at 1.1542 (October 9, 14) lines up as the immediate contention, followed by the August trough at 1.1391 (August 1), and the critical 200-day SMA at 1.1261. The loss of the latter could pave the way for a potential move to the weekly low at 1.1210 (May 29).
Meanwhile, while above the 200-day SMA at 1.1261, the near-term outlook for EUR/USD is expected to remain constructive.
Momentum indicators have lost some shine as of late: the Relative Strength Index (RSI) eases to nearly 47, indicative that further weakness could be lying ahead. In addition, the Average Directional Index (ADX) around 16 indicates that the current trend still lacks colour.
EUR/USD daily chart
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Still waiting for a spark
For now, EUR/USD remains in search of a convincing catalyst. A more dovish stance from the Fed, fading demand for US assets, steadier guidance from the ECB, or progress on the trade front could all finally give the single currency the push it needs to break higher in a more sustainable fashion.
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.
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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.
