EUR/USD Price Forecast: Further gains in the pipeline
- EUR/USD advances to two-week highs well past the 1.1600 hurdle on Thursday.
- The US Dollar intensifies its decline, slipping back to monthly troughs.
- Investors’ optimism following the end of the US shutdown boosts sentiment.
EUR/USD clinches its third consecutive day of gains, this time reaching fresh monthly peaks near 1.1660 and staying en route to hit its second weekly advance in a row.
The continuation of the pair’s monthly recovery follows extra losses in the US Dollar (USD) despite rising SUS Treasury yields across the curve, with the US Dollar Index (DXY) challenging the 99.00 support, or monthly troughs.
Looking at the broader picture, optimism remains well and sound following a deal to end the historic US federal government shutdown, which in turn morphs into extra support for the risk-related universe and seems to underpin the view that upcoming US data could favour the continuation of rate cuts by the Fed.
A deal, but no real victory
So yes, Washington finally struck a deal to end the 43-day historic shutdown. But calling it a win for either side would be a stretch. Congress only managed to fund the government until 30 January, which means fears of yet another shutdown are already creeping back in.
This showdown put Democrats in an unusual position, given it’s usually Republicans who push these budget battles. And what was striking this time was what barely came up at all: the $38 trillion national debt, which is still on track to grow by about $1.8 trillion a year.
Senate Democrats argued that the economic disruption, delayed benefits, and missed paycheques for federal workers were worth it if they spotlighted the looming jump in health insurance costs affecting roughly 24 million Americans. Republicans, meanwhile, ended up making the case normally heard from Democrats: that the shutdown’s economic fallout simply wasn’t worth it.
The freeze on government operations also meant no new economic data, leaving the Federal Reserve (Fed) and markets trying to gauge the health of the US economy without their usual readouts.
A slight thaw in US–China tensions
After months of back-and-forth, Presidents Donald Trump and Xi Jinping met in South Korea, giving global markets a rare moment of calm. The two agreed to extend the truce in the US–China trade war: not a breakthrough, but at least no new escalation.
Following the talks, Trump said the US would dial back some tariffs, while China agreed to resume soybean imports, keep rare-earth exports flowing, and work more closely with the US on fentanyl enforcement.
Beijing later confirmed that both sides had agreed to extend the ceasefire for another year. It’s not a game-changer, but it does show both countries are willing to keep talking.
Fed takes the cautious middle road
The Fed kept its tone measured at the October 29 meeting, cutting rates by 25 basis points and restarting small-scale Treasury purchases to smooth out money-market pressures.
The decision, backed by a 10–2 vote, brought the target range to 3.75%–4.00%, exactly as markets had expected. Officials characterised the move as a precaution rather than the start of a deeper easing cycle.
Fed Chair Jerome Powell highlighted the range of views inside the Federal Open Market Committee (FOMC) and warned against assuming another cut is coming in December.
Markets are now pricing in nearly 12 basis points of additional easing by year-end and roughly 81 basis points by end-2026. Those expectations could shift once the government reopens and delayed releases, including the crucial Nonfarm Payrolls report, finally hit the wires.
ECB happy to stay put
Across the Atlantic, the European Central Bank (ECB) kept rates unchanged at 2.00% for a third straight meeting, signalling comfort with its current stance. Growth and inflation are hovering near target, and after 200 basis points of cuts earlier this year, policymakers see little reason to move again.
ECB President Christine Lagarde noted that global risks have eased a bit thanks to the trade truce and partial US tariff rollback, though she also emphasised that uncertainty remains high.
Market pricing now shows just over 8 basis points of additional easing by end-2026, essentially a sign that traders think the ECB has largely finished cutting.
Tech corner
EUR/USD extends its march north, revisiting the 1.1650 region for the first time since late October.
Next on the upside for the pair are the weekly highs at 1.1668 (October 28) and 1.1728 (October 17), all preceding the October ceiling at 1.1778 (October 1). Extra gains could revisit the 2025 ceiling of 1.1918 (September 17), before the 1.2000 yardstick.
On the downside, the November base at 1.1468 (November 5) should offer immediate contention, followed by the August floor at 1.1391 (August 1). A deeper decline could pave the way for a move toward the key 200-day SMA at 1.1368, ahead of the weekly trough at 1.1210 (May 29) and the May valley at 1.1064 (May 12).
Additionally, momentum indicators pick up pace: the Relative Strength Index (RSI) rebounds beyond the 56 level, suggesting further upside ahead, while the Average Directional Index (ADX) below 16 signals a still weak trend.
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What’s next
EUR/USD is still stuck in consolidation, waiting for something strong enough to break the range. A shift in the Fed’s message, a renewed appetite for risk, or firmer Eurozone asset demand over US ones could all move the dial. For now, though, it’s still the Dollar’s swings that are calling the shots.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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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.
