EUR/USD Price Forecast: Prudence should kick in ahead of Fed, ECB
- EUR/USD extends its multi-day recovery, revisiting the 1.1650 zone.
- The US Dollar retreats slightly amid Fed rate cut bets and hopes of a trade deal.
- Germany’s Business Climate improved a tad in October, IFO reported.
EUR/USD is having a hard time keeping Friday’s momentum going, as the pair briefly retested the 1.1650 area early in the week before running out of steam. Still, it’s managed to notch four straight days of modest gains as the US Dollar (USD) continues to drift lower.
The Greenback, in the meantime, is holding in a narrow range, with the US Dollar Index (DXY) hovering just under the 99.00 mark. Traders seem cautiously optimistic about a potential US–China trade breakthrough, even as the prolonged US government shutdown keeps the buck’s demand in check.
Washington stalemate weighs on sentiment
The US government shutdown has now dragged on for nearly a month, and patience is wearing thin. With lawmakers still deadlocked, there’s little hope of a breakthrough anytime soon. The Senate is due to reconvene on October 28 for another vote, but few expect any surprises.
At 27 days and counting, this has become the second-longest shutdown in US history. If it runs through November 5, it’ll officially set a new record.
The longer it lasts, the deeper the damage. Hundreds of thousands of federal employees remain unpaid, key public services are disrupted, and business confidence is taking a hit. That uncertainty is starting to ripple through to jobs and GDP growth, both already showing signs of strain.
Trade tensions ease, but only a little
Markets are keeping a close eye on any progress between Washington and Beijing. There’s talk of a possible meeting between President Trump and President Xi Jinping later this month in South Korea, but for now, relations remain fragile.
Beijing’s move to tighten restrictions on rare earth exports has ruffled feathers in Washington, prompting sharp pushback and fresh tariff threats from Trump. That flare-up has put trade risks back on investors’ radar.
Fed keeps playing it flexible
The Federal Reserve (Fed) looks on track to deliver another 25-basis-point rate cut at its October 29 meeting.
Its latest “dot plot” leaned dovish, pointing to around 50 basis points of additional easing by year-end, with smaller moves pencilled in for 2026–27. Growth forecasts were nudged slightly higher to 1.6%, unemployment stayed put at 4.5%, and inflation projections were unchanged.
Minutes from the last meeting reinforced the idea that the Fed is keeping its options open, ready to act again if needed, but in no hurry to do so.
Fed Chair Jerome Powell acknowledged that the labour market has cooled, repeating that policy decisions will be made “meeting by meeting” as the central bank weighs softer job data against lingering inflation pressures.
ECB happy to stay patient
Over in Europe, the European Central Bank (ECB) also opted to stay put at its September meeting, maintaining a calm, data-dependent stance. Officials reiterated that inflation should gradually head toward target, with core inflation seen at 2.4% in 2025 before easing to 1.9% in 2026 and 1.8% in 2027.
President Christine Lagarde struck a confident tone, saying policy is “in a good place” and that the risks are now more balanced. She made clear that any future adjustments will hinge entirely on the data.
The meeting’s Accounts reflected that slightly brighter mood: policymakers sounded a bit more upbeat about growth across the eurozone and saw little need for further easing.
Markets, for their part, are pricing in just 13 basis points of cuts by the end of 2026, a clear signal that investors think the ECB’s easing cycle is largely over.
Tech corner
A sustained rebound in EUR/USD remains elusive for now, with both the Fed and ECB meetings emerging as potential catalysts for a clearer price action in the next few weeks.
Immediately to the upside emerges the weekly top at 1.1728 (October 17), ahead of the October peak at 1.1778 (October 1). Up from here comes the 2025 ceiling of 1.1918 (September 17), prior to the psychological 1.2000 yardstick.
If sellers regain the initiative, the October low at 1.1542 (October 9, 14) should come as the initial support, seconded by the August base at 1.1391 (August 1) and the key 200-day SMA at 1.1293. The loss of the latter exposes a potential visit to the weekly trough at 1.1210 (May 29).
Looking at the broader picture, the positive outlook remains in place while above the important 200-day SMA.
Furthermore, momentum indicators still remain on the bearish side: the Relative Strength Index (RSI) sits just over 47, leaving the door open to extra losses, while the Average Directional Index (ADX) around 15 suggests that the current trend lacks muscle.
EUR/USD daily chart
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Waiting for a catalyst
For now, EUR/USD is still searching for a spark. A dovish twist from the Fed, a cooling appetite for US assets, a steadier hand from the ECB, or genuine progress on trade could finally give the euro the lift it’s been waiting for.
Euro FAQs
The Euro is the currency for the 19 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.
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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.
