EUR/USD Weekly Forecast: Federal Reserve opened the door for additional US Dollar gains

The EUR/USD pair ended October with a weak note, barely holding above a three-month low of 1.1522 posted in the last trading day of the month. The pair is down for a second consecutive week following the Federal Reserve (Fed) and European Central Bank (ECB) monetary policy decisions.

Federal Reserve hawkish cut

The Federal Open Market Committee (FOMC) decided to trim the benchmark interest rate by 25 basis points (bps) to a range of 3.75% to 4%. There were two dissenters: Stephen Miran, who voted for a 50 bps cut, and Jeffrey Schmid, who preferred to keep rates unchanged. Policymakers also announced an end to the quantitative tightening (QT) program. The decision, alongside the statement, had a limited impact on financial markets, but things changed after Chair Jerome Powell delivered a press conference.

Chair Powell was pretty hawkish, noting that the decision to trim interest rates was risk management while adding that a December cut should not be taken for granted. The US Dollar (USD) soared and stocks edged firmly lower amid speculative interest rolling back bets for a December cut.

Additionally, Powell highlighted the challenges in assessing the economic situation amid the government shutdown, resulting in the absence of official data, particularly employment-related data. “There’s a possibility that it would make sense to be more cautious,” Powell noted, adding, “I’m not committing to that, I’m just saying it’s certainly a possibility that you would say, ‘we really can’t see, so let's slow down.’”

European Central Bank on hold

The ECB announced its decision on monetary policy on Thursday, and as widely anticipated, European policymakers kept interest rates on hold. Therefore, the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility stood at 2.15%, 2.4% and 2%, respectively. The decision came as no surprise, given that not only policymakers anticipated, but also that the loosening cycle had begun much earlier than the Fed. The ECB started trimming rates in June 2024 and delivered eight cuts that resulted in interest rates reaching a comfortable neutral rate, without any signs of increased price pressures and the economy posting modest yet steady growth.

President Christine Lagarde repeated that the ECB is in a good place during the press conference that followed the decision, also reiterating that officials stand ready to ensure that inflation stabilizes at its 2% target in the medium term. Finally, Lagarde mentioned that some of the downside risks to growth have abated, but that with inflation is not the same.

The ECB decision had no real impact on the Euro (EUR), with EUR/USD extending its weekly decline after market participants digested the news.

US government shutdown and trade war

Meanwhile, the US government shutdown has been ongoing for a month. The federal government ran out of funding on October 1, and the Senate has been unable to agree on a bill to reverse the situation. Financial markets have become more aware of the long-term effects after the Fed’s announcement, yet are still looking at the situation with a dose of calm.

Also, trade-war back-and-forth dominated headlines throughout the week. News from such a front was mostly positive after US President Donald Trump met with his Chinese counterpart, Xi Jinping, in South Korea. Both leaders announced a de-escalation of the latest measures, with the US reducing fentanyl-related tariffs to 10%, and China agreeing to buy more agricultural goods from the US. Beijing also suspended rare-earth export controls and agreed to explore energy sector cooperation.

The US also announced an enhanced trade agreement with Japan, a framework to coordinate on important minerals that reaffirmed their previous mutual commitments. US President Trump met with Prime Minister Sanae Takaichi on Tuesday, later announcing the US will charge 15% tariffs on Japanese goods, down from the initially threatened 25%, while Japan pledged to invest $550 billion in US industry and open its market to some American goods such as rice, cars, and defense equipment.

Mixed European data

Germany released data throughout the week, which came in mixed. The IFO Business Climate survey improved in October to 88.4 from 87.7 posted in September, yet Consumer Confidence deteriorated according to the GfK survey, which shrank to -24.1 in November from -22.3 previously.

The country also published the preliminary estimate of the Q3 Gross Domestic Product (GDP), which showed the economy did not grow in the three months to September. The reading was better than the -0.3% posted in Q2, but still discouraging. Finally, Germany released the preliminary estimate of the October Harmonized Index of Consumer Prices (HICP), which rose at an annualized pace of 2.3% as expected. The monthly HICP rose by 0.3%, slightly higher than the 0.2% posted in September.

As for the Eurozone, the Q3 GDP was up 0.2% QoQ, better than the previous 0.1%, while October Consumer Confidence printed at -14.2, matching September's reading and expectations. Regarding the HICP, the preliminary October estimate printed at 2.1% YoY, easing from the previous 2.2%, while the core annual reading remained steady at 2.4%, higher than the 2.3% expected.

What’s next in the docket

The macroeconomic calendar will include the final estimates of the October S&P Global Manufacturing Purchasing Managers’ Indexes (PMIs) for both economies, and the official US ISM Manufacturing PMI on Monday.

Germany will publish September Factory Orders, while the Eurozone will unveil the Producer Price Index (PPI) for the same month on Wednesday. S&P Global will release the same day the Services and Composite PMIs for both economies, while the US will publish the October ADP Employment Change survey and the ISM Services PMI for the same month. Finally, the Eurozone will release September Retail Sales on Thursday.

A self-note goes for policymakers: multiple ECB and Fed officials will be on the wires throughout the week after the blackout periods ended with the monetary policy announcements.

EUR/USD technical outlook

In the daily chart, EUR/USD is currently trading at 1.1528. A bearish 20 SMA slides south below at 1.1622, while below a directionless 100 SMA at 1.1665. The 200 SMA, on the contrary, continues to advance below the current level, at 1.1314, underpinning the pair on dips. With spot holding below the 20- and 100-day SMAs, the path of least resistance remains to the downside.

In the same chart, the Momentum indicator remains in negative territory, indicating a waning but still present downward traction. At the same time, the RSI indicator continues to grind lower, reaching 36.5, which is well beneath the 50 mid-line and not yet oversold, reinforcing a bearish bias. As long as EUR/USD lingers beneath the falling 20-day average, sellers retain control; a recovery would first need to clear 1.1622 and then 1.1665 to alleviate pressure, while failure to do so risks another test of the advancing 200-day SMA at 1.1314.

In the weekly chart, EUR/USD is holding beneath a flattening 20-week SMA at 1.1674 but comfortably above the rising 100-week and 200-week SMAs at 1.1016 and 1.0836, respectively. The short-term average remains above the longer ones yet has lost directional strength, while the 100- and 200-week curves continue to advance, preserving a broader positive bias. The 20-week SMA caps the immediate topside as resistance, with dynamic support aligned first at the 100-week SMA, followed by the 200-week mark.

Oscillators echo this stalling tone: the Momentum indicator is marginally negative and oscillating around its midline, lacking traction, while the weekly RSI is flat around the 50 threshold, signaling a neutral stance. A decisive weekly close above 1.1674 is needed to re-energize the bullish narrative and open the door to additional gains; failure to clear that barrier would likely keep the pair range-bound and risk a gradual drift toward 1.1016, with 1.0836 as a deeper line of defense.

(This content was partially created with the help of an AI tool)