EUR/USD Price Forecast: Outlook remains subdued below 1.0840

EUR/USD faded Friday’s downtick, managing to regain the smile and advance to just pips away from the key 1.0600 the figure in quite an auspicious start to the new trading week.

On the flip side, the US Dollar (USD) alternated gains with losses around the 106.00 region following investors’ steady prudence ahead of the release of US CPI data later in the week and the resurgence of geopolitical concerns in the Middle East.

Central banks take the spotlight

Monetary policy continues to dominate market sentiment. On November 7, the Federal Reserve (Fed) cut its benchmark interest rate by 25 basis points to 4.50%-4.75% as part of its inflation-fighting strategy. However, signs of strain are emerging in the US labour market, even as unemployment remains historically low. 

Fed Chair Jerome Powell struck a cautious tone in his latest remarks, hinting that the current rate cuts might be enough for now. FOMC Governor Michelle Bowman echoed this, advocating a patient approach to future policy shifts. Powell also expressed confidence that the new US administration would respect the Fed’s independence and emphasised that the economy's resilience allows for a measured stance on rate adjustments. 

Meanwhile, the European Central Bank (ECB) has held rates steady since October, when it lowered the deposit rate to 3.25%. Inflation remains a concern, with November data showing renewed price pressures in Germany and the broader Euroland, alongside rising wages. ECB President Christine Lagarde acknowledged downside growth risks but maintained her usual neutral outlook.

Trade policies add complexity

Former US President Donald Trump’s proposed trade tariffs could disrupt markets, potentially driving US inflation higher. This scenario might prompt the Fed to adopt a more hawkish stance, which could strengthen the Greenback and weigh on EUR/USD.

EUR/USD technical outlook

Technically, EUR/USD remains under bearish pressure. Key support levels include 1.0331 (2024 low), 1.0290, and 1.0222, last seen in November 2022. On the upside, immediate resistance lies at 1.0629, followed by the 200-day Simple Moving Average (SMA) at 1.0842 and November’s peak at 1.0936. 

Looking at the broader picture, the bearish trend persists as long as the pair trades below the 200-day SMA.

On a four-hour chart, resistance at 1.0629, 1.0648, and 1.0824 could limit gains, while support levels are 1.0460, 1.0424, and the key 1.0331 mark. Momentum indicators like the RSI (near 53) suggest potential upside, though the ADX (around 28) points to some pick-up in trend strength.

EUR/USD daily chart

Bottom Line

EUR/USD remains vulnerable amid USD strength, political shifts, and diverging monetary policies between the Fed and ECB. While it has staged a modest recovery, downside risks persist, leaving the pair exposed to further declines as market dynamics evolve.