EUR/USD Price Forecast: The 1.2000 level seems closer
- EUR/USD rose to fresh yearly highs near 1.1880.
- The US Dollar came close to its multi-year lows ahead of the Fed meeting.
- The Fed is seen trimming its interest rates by 25 bps on Wednesday.
The Euro (EUR) picked up fresh momentum on Tuesday, lifting EUR/USD to new 2025 highs near 1.1880. The US Dollar (USD) stayed on the defensive, with the US Dollar Index (DXY) sliding further below the 97.00 mark to flirt with its lowest levels in three years.
Trade tensions ease, but tariffs still weigh
Global trade nerves calmed somewhat after Washington and Beijing agreed to extend their truce for another 90 days. President Trump pushed back tariff hikes until November 10, while China held off on retaliation. Even so, tariffs remain steep: US imports from China are taxed at 30%, while Chinese shipments to the US face a 10% charge.
At the same time, Washington struck a new deal with Brussels. The European Union (EU) agreed to cut tariffs on US industrial goods and expand access for American agricultural and fisheries exports. In return, Washington imposed a 15% tariff on most European imports, while car tariffs remain on the table depending on upcoming EU legislation.
Fed poised for a September rate cut
The Federal Reserve (Fed) is widely expected to cut interest rates by 25 basis points at Wednesday’s meeting.
Traders will be watching not just the decision but also the updated “dot plot”, which will reveal policymakers’ rate path expectations for the months ahead.
ECB stays on hold; inflation broadly aligned with target
The European Central Bank (ECB) kept all three key rates unchanged last week, as expected.
Officials said inflation is now broadly in line with the 2% medium-term target, with projections close to those made in June. Core inflation is forecast to average 2.4% in 2025 before easing to 1.9% in 2026 and 1.8% in 2027.
The ECB repeated that policy will stay data-dependent and meeting-by-meeting, with decisions shaped by inflation prospects, incoming data, underlying price dynamics, and policy transmission. President Christine Lagarde said the Bank is in a “good place”, noting the risks are now more balanced.
EUR/USD technical outlook: testing the upside
EUR/USD looks to be breaking out of its consolidative range.
On the topside, resistance sits at the 2025 ceiling of 1.1878 (September 16). A clear move above would bring the September 2021 high at 1.1909 into play, followed by the psychological 1.2000 mark.
On the downside, short-term support is found at the 100-day Simple Moving Average (SMA) at 1.1551, followed by the August trough at 1.1391 (August 1) and the weekly floor at 1.1210 (May 29).
Momentum signals remain mixed. The Relative Strength Index (RSI) has climbed toward 65, showing buyers are still in control, but the Average Directional Index (ADX) is stuck near 14, suggesting the trend lacks conviction.
EUR/USD daily chart
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What’s next for EUR/USD?
The Euro looks ready to push higher, but a decisive breakout may need a fresh catalyst, whether that comes from US data, a firm move by the Fed, or another twist in global trade policy.
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.
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.
