EUR/USD Price Forecast - Eur Steadies at 1.1650, Powell’s Exit Spark Bullish Momentum Toward 1.18

EUR/USD Outlook: Fed Policy, Dollar Weakness, and Structural Euro Strength Ahead of 2026

Short-Term Structure and Price Behavior of EUR/USD

The EUR/USD pair extended its cautious climb this week, trading from 1.1630 to 1.1643, with intraday highs at 1.1682 before easing slightly into Friday’s close. This subtle rise reflects underlying accumulation ahead of the Federal Open Market Committee (FOMC) decision on December 11, 2025. Market participants anticipate a 25-basis-point cut, which would bring the federal funds rate to 3.5%–3.75%, triggering renewed weakness in the U.S. dollar (USD). The euro (EUR) benefits from regional inflows and improving industrial sentiment in the Eurozone, reinforcing short-term demand between 1.1620–1.1650.

Fed Transition and Shifting Power Dynamics

Market sentiment is being reshaped by the evolving political and institutional framework within the Federal Reserve. Jerome Powell’s tenure, ending in spring 2026, is already affecting expectations. His likely successor is projected to adopt a more accommodative approach if inflation remains below 2%, marking a decisive shift from Powell’s cautious tone. This has weakened the U.S. Dollar Index (DXY) below 99.80, the lowest since September, helping EUR/USD stabilize near 1.1650.

European Stability and ECB Monetary Posture

The European Central Bank (ECB) has maintained its deposit rate at 3.75%, while inflation in the eurozone cooled to 2.2% year-over-year, the lowest level in four years. Lower energy costs and reduced import pressure have strengthened the euro’s fundamentals. At the same time, eurozone industrial output rose 0.6% month-over-month, while Germany’s PMI improved to 49.8, showing signs of recovery. The euro’s correlation with the Stoxx 600 Index climbed to 0.73, illustrating stronger investor appetite for European assets as capital rotates out of the U.S.

Technical Framework: EUR/USD Key Levels and Momentum

The EUR/USD trend remains structurally bullish while price holds above 1.1590, which produced the last major breakout. The pair currently oscillates within a 1.1600–1.1700 consolidation zone. A decisive close above 1.1700 could extend the rally toward 1.1740, while a pullback below 1.1590 may lead to profit-taking near 1.1535. The 50-day EMA at 1.1560 continues to support short-term bullish momentum, while algorithmic models identify 1.1668 as the critical pivot for continuation toward 1.1725.

Macro Divergence and Yield Compression

Recent U.S. economic indicators confirm a slowdown. Nonfarm Payrolls grew only 142,000, and the unemployment rate increased to 4.1%, its highest since 2021. Meanwhile, U.S. 2-year Treasury yields fell to 4.28%, while German Bunds stabilized around 2.23%, compressing the yield spread to its narrowest in 10 months — a major bullish catalyst for EUR/USD. In parallel, eurozone current account surpluses have expanded to €31.5 billion, providing additional currency support through export-backed inflows.

Institutional Flows and Derivative Positioning

CFTC data show net-long euro contracts increasing for a third consecutive week, now totaling +1.07 million, compared to +111,800 the week prior — a clear sign of institutional accumulation. Option markets reveal dense call positioning above 1.17 for December expiry, reflecting expectations of a controlled upward move. Should the Fed confirm a dovish stance next week, traders anticipate a fast test of 1.1740 and potentially 1.1800.

Market Liquidity and Trading Zones to Watch

Liquidity clusters are concentrated between 1.1620–1.1650, representing institutional demand zones. A break above 1.1700 could unleash stop orders toward 1.1740, while a failure to sustain above 1.1610 would expose 1.1550, the 38.2% Fibonacci retracement of the November rally. The EUR/USD volatility index remains low, signaling calm accumulation rather than speculative euphoria.

Macro Risk Factors and Geopolitical Considerations

Europe’s natural gas reserves, at 86% capacity, reduce energy-related downside risk for the euro, while a weaker dollar continues to benefit trade balances. However, potential U.S. fiscal instability and renewed trade tension with China could inject short-term volatility into global currency markets. Should the DXY rebound toward 100.40, the euro might temporarily face headwinds before reasserting dominance above 1.17.

Strategic Outlook and Verdict

All macro and technical signals favor sustained euro appreciation into early 2026. The structural weakening of the USD, combined with improving eurozone fundamentals, supports a continuation of the upward trend. The most critical price levels remain 1.1590 (base support) and 1.1740 (resistance trigger). A confirmed break beyond 1.1740 would open the path toward 1.1800–1.1850, representing a potential 2% upside extension.

Verdict: BUY above 1.1590, targeting 1.1740, 1.1800, and 1.1850.
Momentum, macro policy divergence, and yield compression all confirm a bullish EUR/USD bias. The euro remains in structural accumulation, with the FOMC outcome likely to determine the next phase of expansion into Q1 2026.

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