EUR/USD Price Forecast: Euro Battles Debt Fears and Fed Cut Bets Around 1.1650

EUR/USD Struggles Around 1.1650 as Bond Yields Surge and Dollar Demand Holds Firm

The EUR/USD pair is hovering near 1.1648 after a volatile week marked by weak Eurozone data, rising sovereign debt concerns, and renewed safe-haven flows into the U.S. dollar. The euro briefly dipped to 1.1608 before stabilizing, but the backdrop remains fragile as investors weigh deteriorating European fundamentals against the growing probability of a Federal Reserve rate cut this September.

Eurozone Data Misses Reinforce ECB’s Cautious Stance

The final August Composite PMI from Hamburg Commercial Bank confirmed a slowdown, with services revised down to 51 and the composite at 50.5, just barely above contraction. Producer Prices in July rose only 0.4% year-on-year, weaker than June’s 0.8%. Inflation at 2.1% in August, slightly above the ECB’s target, complicates the policy mix. Germany faces record borrowing needs, forecasting €500 billion through 2029, while French 30-year yields spiked above 4.5% before easing. Investors see these fiscal dynamics as a direct drag on the euro, even as ECB officials show little urgency to tighten further.

U.S. Labor Market Weakness Boosts Euro Recovery Attempts

The U.S. Job Openings and Labor Turnover Survey (JOLTS) showed vacancies falling to 7.18 million, sharply below June’s 7.44 million. Layoffs rose by 12,000, while factory orders contracted 1.3% month-over-month. This series of soft data, combined with six consecutive months of ISM manufacturing contraction, has raised the odds of a September rate cut to 91%. The Dollar Index (DXY) slipped to 98.06 after the JOLTS release, giving the euro room to rebound toward 1.1679 intraday. Still, traders remain cautious with Friday’s Nonfarm Payrolls expected to show only 75,000 jobs added and unemployment ticking up to 4.3%.

Technical Structure Shows EUR/USD Caught in a 150-Pip Range

From a chart perspective, EUR/USD is consolidating within a 1.1575–1.1736 range that has defined most of August. The 20-day SMA at 1.1665 capped gains in European trade, while the 100-day SMA near 1.1520 underpins the broader floor. RSI readings around 50 show balanced momentum, but the MACD continues a downward drift. Bulls need a decisive close above 1.1735 to unlock a test of 1.1800 and the year-to-date high at 1.1829. On the downside, losing 1.1620 would reopen 1.1590 and 1.1550, while a break of 1.1530 could trigger deeper selling toward 1.1470.

Bond Market Turmoil Adds Pressure to the Euro

European long bonds have rattled markets. German 30-year yields topped 3.44% this week, their highest since 2011, while French yields approached crisis-era levels. Investors fear fiscal expansion and defense spending commitments will lock Europe into higher borrowing costs. This divergence versus U.S. Treasuries—where the 10-year yield has eased to 4.22% and the 30-year to 4.91%—reinforces dollar resilience. Traders note that 30-year U.S. bonds remain sensitive to inflation fears but still enjoy credibility that European sovereigns lack. As long as Eurozone debt sustainability remains in focus, rallies in EUR/USD will likely be capped.

Fed Cuts vs. Dollar’s Safe-Haven Role Define the Next Move

Markets are split between two forces: the near certainty of a Fed rate cut and the persistent demand for the U.S. dollar as global risk aversion rises. Trump’s tariff policy, challenged by courts yet still fueling economic friction, keeps investors defensive. Weak payrolls on Friday could break the dollar’s short-term support, potentially lifting EUR/USD toward 1.1720–1.1800. But any upside surprise in jobs or inflation data would quickly swing momentum back toward the 1.1600 floor. Hedge funds have shifted positioning aggressively, with net long euro bets fading as leverage tilts back to the dollar.

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