EUR/USD Price Forecast: Next on tap comes… 1.1400?
- EUR/USD adds to the ongoing bearishness and tests 1.1600 on Wednesday.
- The US Dollar extends its upside momentum to two-month tops.
- The FOMC Minutes leant to the dovish side, advocating further easing.
EUR/USD remained on the defensive on Wednesday, extending its weekly offered bias and testing the key 1.1600 support level. The pair’s weakness comes amid lingering political uncertainty in France and an ongoing US government shutdown, with little sign of compromise in sight.
At the same time, the US Dollar (USD) remains in control. The US Dollar Index (DXY) picked up fresh momentum in risk-off trading, climbing toward the 99.00 level, hitting fresh two-month highs.
French politics back in focus
France’s political drama is once again front and centre. President Emmanuel Macron has asked outgoing prime minister Sebastien Lecornu to reach out to opposition parties and try to break the deadlock.
The irony is that Lecornu had just resigned hours earlier, after presenting what turned out to be the shortest-lived cabinet in modern French history. Still, Macron wants him to stay on temporarily to lead talks and calm markets, at least for now.
Central banks keeping a steady hand
Across the Atlantic, the Federal Reserve (Fed) cut rates by 25 basis points on September 17, acknowledging softer labour data but noting that inflation remains “somewhat elevated.”
The Fed’s updated dot plot leaned dovish, signalling another 50 basis points of easing before year-end and smaller cuts through 2026–27. Growth forecasts edged up to 1.6%, unemployment held steady at 4.5%, and inflation projections were unchanged.
Not everyone agreed: incoming governor Stephen Miran argued for a larger half-point cut but didn’t win over the committee.
At his press conference, Chair Jerome Powell pointed to slower job creation and softer household spending, with headline PCE inflation at 2.7% and core at 2.9%. He said tariffs were keeping some prices sticky, even as services inflation cools, adding that the balance of risks now looks “more balanced” — a hint the Fed may be nearing neutral rather than starting a deep easing cycle.
When Powell spoke again a few days later, he doubled down, saying inflation could still flare up even as a weaker labour market drags on growth.
The FOMC’s September minutes confirmed that policymakers still see room for more rate cuts this year. Most supported the quarter-point move, but the discussion revealed growing unease about softer employment and easing price pressures. The tone was cautious but still clearly leaning toward further easing.
Meanwhile, the European Central Bank (ECB) kept policy unchanged in September, sticking to its meeting-by-meeting approach. Officials said inflation remains on track to return to the 2% target over time. Core inflation is projected to average 2.4% in 2025 before easing to 1.9% in 2026 and 1.8% in 2027.
President Christine Lagarde said policy is in a “good place” and that risks are broadly balanced, repeating that any future moves will depend entirely on incoming data.
Trade tensions still simmering
Trade remains a wildcard. Washington and Beijing agreed to a 90-day truce that has calmed markets somewhat, but tariffs remain in place: 30% on Chinese imports to the US and 10% on US exports to China.
There’s also been progress between Washington and Brussels. The US and EU reached a partial deal lowering EU tariffs on American industrial goods and improving access for US agricultural and seafood exports. In exchange, the US imposed a 15% tariff on most EU imports.
The major unresolved issue is autos, still hanging under the threat of new tariffs.
Traders growing cautious on the EUR
Positioning data show sentiment on the single currency has cooled. With new Commodity Futures Trading Commission (CFTC) data delayed by the US government shutdown, the most recent figures to September 23 show net longs on the EUR falling to the lowest since July around 114.3K contracts. In addition, institutional net shorts narrowed slightly to around 165.8K, while open interest rose to a two-week high of nearly 859.2K contracts.
Technical landscape
EUR/USD is accelerating its downside momentum, opening the door to further weakness in the short-term horizon.
Against that, the pair is expected to meet initial resistance at the 2025 ceiling of 1.1918 (September 17), before the psychological 1.2000 threshold.
On the downside, a break below the weekly floor at 1.1574 (August 27), could put a visit to the August valley at 1.1391 (August 1) back on the radar.
Looking at the broader picture, the pair’s positive view should remain intact as long as it trades above its key 200-day SMA at 1.1208.
Momentum indicators point to extra decline in the very near term: the Relative Strength Index (RSI) receded below 40, suggesting that further losses are likely. Additionally, the Average Directional Index (ADX) near 13 indicates a trend that lacks muscle for now.
EUR/USD daily chart
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Waiting for a catalyst
EUR/USD might have some room to rebound, but a clear spark is missing. A dovish surprise from the Fed, weaker demand for US assets, a steady-handed ECB, or signs of progress on trade could all help shift sentiment and give the pair a lift.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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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.
