EUR/USD Price Forecast: Pre-Fed consolidation in the pipeline
- EUR/USD comes under further downside pressure, threatening 1.1600.
- The US Dollar trades with decent gains ahead of the FOMC event.
- Investors have fully priced in another rate cut by the Fed on Wednesday.
EUR/USD is sticking to a soft downside bias on turnaround Tuesday, sliding back toward the key 1.1600 area and marking fresh multi-day lows. It’s also testing the 55-day SMA from above, adding a bit of technical tension to the move.
The pullback lines up neatly with a stronger US Dollar (USD). The US Dollar Index (DXY) has climbed to fresh five-day highs near 99.30, even teasing its own 200-day SMA.
On top of that, US Treasury yields are bouncing higher across various time frames, all ahead of Wednesday’s eagerly awaited quarter-point cut from the Federal Reserve (Fed).
Washington avoids shutdown chaos, for now
The US government may be up and running again after a 43-day shutdown, but let’s not pretend the drama is over. Lawmakers only kicked the can to January 30, keeping the next showdown firmly in sight.
The finger-pointing hasn’t cooled either. Democrats say the standoff highlighted soaring healthcare insurance costs affecting roughly 24 million Americans. Republicans argue the shutdown was pointless and harmful, delaying benefits and missing pay cheques, while the national debt charges toward $38 trillion and keeps expanding by roughly $1.8 trillion per year.
In other words, they bought time, not peace.
Fed outlook: A cut now, but the messaging matters more
The Fed delivered a 25 basis point cut in late October and restarted some modest Treasury purchases to smooth out funding markets. That puts the Fed Funds Target Range (FFTR) at 3.75%–4.00% following a 10–2 vote.
But Chair Jerome Powell was quick to stress: this isn’t the start of aggressive easing. The Committee is split, and December is no guaranteed follow-up cut.
Markets still see a high chance, around 88%, of another rate reduction on Wednesday, with a total of roughly 75 basis points of easing forecast by end-2026. Even so, the tone could come across surprisingly hawkish, considering inflation’s stickiness, a labour market that hasn’t cracked, and GDP figures that keep coming in firmer than expected.
Traders will pore over the updated Summary of Economic Projections (SEP), but major surprises aren’t the consensus.
ECB: No rush to act
Across the Atlantic, the European Central Bank (ECB) has gone into steady-hands mode. Policymakers held rates at 2.00% for a third straight meeting on October 30.
Inflation is stabilising, growth is roughly on track, and after 200 basis points of cuts already delivered this year, there’s simply no urgency to tweak policy further.
President Christine Lagarde noted that global risks have cooled somewhat — including around US-China relations, but uncertainty remains high.
The latest ECB Accounts also showed broad internal agreement: don’t touch the policy dial just yet.
Markets mostly agree, as they see a steady hold on December 18 as the comfortable base case.
Tech corner
EUR/USD has met a tough upside barrier around 1.1680 for now, triggering a mild correction afterwards.
Once spot clears its December ceiling of 1.1681 (December 4), it could then open the door to a potential visit to the weekly peak at 1.1728 (October 17), before the October top at 1.1778 (October 1).
In the opposite direction, there is an immediate contention at the weekly trough at 1.1491 (November 21). The loss of this region could spark a move toward the key 200-day SMA at 1.1472, closely followed by the November floor at 1.1468 (November 5). Down from here sits the August low at 1.1391 (August 1) ahead of the weekly base at 1.1210 (May 29) and the May valley at 1.1064 (May 12).
In the meantime, the pair’s positive outlook appears to be losing some of its shine: The Relative Strength Index (RSI) recedes to around 53, paving the way for a further deeper retracement, while the Average Directional Index (ADX) above 14 suggests a trend that still lacks muscle.
-1765307039324-1765307039325.png&w=1536&q=95)
Big picture: Outlook still positive, but without conviction
EUR/USD is still technically leaning upward, but the vibe is far from enthusiastic. Until the Fed delivers more clarity on just how far and fast it plans to ease, or Eurozone growth shows a pulse, rallies are likely to stay modest.
For now, the pair remains mostly a passenger to US data and policy headlines.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the 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.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
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.
