EUR/USD Weekly Forecast: Bulls pray for a dovish Fed

In the last few days…

EUR/USD has finally taken a breather after a pretty energetic climb. The pair broke above 1.1680 in the second half of the week, reaching its highest levels in around two months before running into some selling pressure. Even so, it has gained almost two cents from the late-November dip just below 1.1500 the figure.

This whole upswing has closely shadowed the US Dollar (USD) moving in the other direction. Indeed, the US Dollar Index (DXY) slipped back below 99.00, a terrain we hadn’t seen since late October, as traders keep adjusting expectations around the Federal Reserve’s (Fed) plans.

At the same time, both US Treasury yields and German 10-year bund yields have rebounded, with the latter advancing toward multi-week highs near 2.80%.

Bets for a dovish Fed and a prudent ECB underpin the uptick

The US Dollar’s weakness comes down to a growing belief that the Fed could deliver another 25-basis-point cut at its December 10 meeting. There’s also increasing speculation that the next Fed Chair may come from the dovish side of the spectrum and be more aligned with the White House, which adds to the pressure on the Greenback as we turn the page into December.

Market pricing currently leans heavily toward a cut next week, and traders think the Fed could have delivered around 82 basis points of easing by the end of 2026.

Meanwhile, in Euroland, the European Central Bank (ECB) has taken a more cautious stance. Rates were held unchanged at 2.00% for a third consecutive meeting in late October, after hefty 200 basis points of cuts earlier in the year. Inflation has steadied, growth isn’t far off expectations, and for now, policymakers see no real urgency to act again.

ECB President Christine Lagarde has acknowledged that global risks have calmed a bit, in part because US-China tensions have softened, but she also stressed the high levels of uncertainty still hanging over the outlook.

The latest Accounts showed a broad consensus to stay put. Markets seem to agree: December 18 is widely expected to bring another hold, with only the mildest moves priced in over the course of 2026.

Shutdown’s dark clouds

While monetary policy has been the main driver, politics has chimed in, too.

The US government may be back open after a 43-day shutdown, but the respite looks brief. Lawmakers simply pushed the next funding deadline to January 30, so another showdown is already pencilled into the diary.

This time, the narrative shifted: Democrats highlighted the strain on healthcare costs for roughly 24 million Americans, while Republicans criticised the disruption to incomes and benefits, pointing to a national debt now surging past $38 trillion and expanding by about $1.8 trillion every year.

In other words, the fiscal story is far from resolved, and that uncertainty can easily keep the Dollar on edge.

Tech corner

EUR/USD’s rally has slowed right around the 1.1700 region. A move above the December 4 high at 1.1682 could reignite upward momentum, potentially opening the way toward the October 17 peak at 1.1728 and even the October 1 high at 1.1778.

If the pair loses altitude instead, the November 21 low at 1.1491 is the first area to watch, seconded by the November 5 trough at 1.1468, which is propped up by the 200-day SMA at 1.1461. Below that lies the August 1 low at 1.1391 before bigger support kicks in around 1.1210 from May 29 and 1.1064 from May 12.

Momentum indicators still paint a cautiously constructive picture: the Relative Strength Index (RSI), which measures the speed and magnitude of recent price moves, is sitting near 56, comfortably above the midpoint of 50. That suggests the market still has some positive momentum and is not close to overbought territory, which usually starts above 70. Meanwhile, the Average Directional Index (ADX), a gauge of trend strength rather than direction, is hovering around 14. That’s a pretty soft reading, basically telling us the rally is still finding its feet as prices are nudging higher, but there’s not exactly a roaring trend behind the move just yet.

Short-term outlook

EUR/USD still has a gentle upward bias, but the mood isn’t exactly euphoric. For now, the pair is largely reacting to the shifting winds at the Fed rather than to any big burst of optimism around the Eurozone. If the Fed leans clearly dovish next week, the Greenback will likely stay under pressure, and the Euro (EUR) could pick up where it left off. If, instead, policymakers sound more cautious about further easing, the single currency’s recent progress could run out of steam pretty quickly.

In the near term, the path remains a slow and steady one: edging higher, but with a hand at the ready on the brake.