EUR/USD Price Forecast - Eur Steadies at 1.1640 Eurozone Growth Lifts Outlook Toward 1.22

EUR/USD Price Forecast – Bulls Hold 1.1640 Ahead of Fed Pivot as Eurozone Growth Outpaces U.S. Slowdown

EUR/USD Trades at 1.1640, Holding Weekly Gain as Dollar Weakens Into Fed Meeting

The EUR/USD pair trades near 1.1640, marking a 0.39% weekly gain, as investors weigh a dovish shift from the Federal Reserve and the stabilizing macro picture in the Eurozone. Market sentiment has turned cautiously bullish, with traders positioning for a break above 1.1740, which could trigger an extended rally toward 1.22, levels unseen since early 2021. The euro’s resilience comes despite ongoing geopolitical risk and mixed retail data, while the U.S. dollar remains pinned under 99.00 on the DXY Index.

Fed Policy Outlook: Rate Cut Odds at 86% Pressure the Dollar

The upcoming December 9–10 Fed meeting dominates the short-term landscape. The CME FedWatch tool shows an 86.2% probability of a 25 bps rate cut, with markets now projecting up to 75 bps of additional cuts through 2026. The dollar’s bearish tone deepened as November’s ADP report showed a 32,000 job loss, the sharpest decline since 2020, while the three-month moving average of private payrolls turned negative for the first time in five years.
The Core PCE Index, the Fed’s preferred inflation gauge, rose just 0.2% month-over-month and 2.8% year-over-year, confirming inflation is cooling but still above target. This moderation gives policymakers room to pivot without sparking runaway inflation. Meanwhile, the University of Michigan’s consumer sentiment index rose to 53.3, with long-term inflation expectations falling to 3.2%, supporting the case for a softer policy tone.

Political Shifts and Market Positioning Undermine Dollar Confidence

Reports indicating that Kevin Hassett could replace Jerome Powell as Fed Chair have intensified bearish sentiment around the dollar. Hassett is seen as more dovish, potentially accelerating rate cuts into 2026. The prospect of earlier easing has already pressured Treasury yields lower, with the 10-year yield dropping below 3.9%, its lowest since August. The U.S. Dollar Index (DXY) fell 0.09% to 98.98, marking a clear technical breakdown below the 99.30–99.50 resistance band. The index’s weakness aligns with broader softness across USD pairs — including declines in USD/CHF (now 0.8045) and USD/JPY (below 155.00).

Eurozone Data Strengthens the Euro’s Base

The Eurozone’s Q3 GDP growth was revised up to 0.3%, beating the previous 0.2% estimate and signaling steady expansion despite external headwinds. Employment grew 0.2% quarter-on-quarter and 0.6% year-on-year, while inflation continues to normalize. Headline CPI for 2025 stands near 2.2%, allowing the European Central Bank (ECB) to maintain a cautious but supportive stance.
ECB officials, including François Villeroy de Galhau, have warned that inflation risks remain “two-sided,” but the real shift is toward maintaining accommodative conditions rather than tightening. Combined with steady fiscal spending and moderating energy prices, this gives the euro a structural tailwind against the dollar’s policy-driven weakness.

EUR/USD Technical Structure: Compression Near 1.1740 Suggests Breakout

The EUR/USD technical profile shows strong medium-term support between 1.1460 and 1.1480, with resistance aligned at 1.1740, a level repeatedly tested over the past three months. The price remains comfortably above both the 50-day SMA (1.1550) and the 200-day SMA (1.1320), reinforcing the bullish bias.
Momentum indicators confirm rising demand: the RSI hovers around 60, signaling strength without overheating, while the ADX near 33 shows a trending structure forming. The MACD has turned positive again, supporting upward continuation. A weekly close above 1.1740 would validate a breakout toward 1.1910 initially, then extend toward 1.22, corresponding to January 2021 highs. On the downside, a break below 1.12 would invalidate this structure and shift focus to 1.10 as next support.

Dollar Cross Signals Reinforce EUR/USD Bullish Momentum

Cross-market confirmation supports the euro’s advance. The USD/CHF breakdown from 0.92 to 0.8045 signals sustained dollar weakness. The pair now trades within a broad descending channel, confirming that capital flow is rotating toward the euro and franc. Similarly, the U.S. Dollar Index’s long-term channel — in place since 2011 — is cracking below the 96–99 range, with downside potential toward 90 if support fails.
Meanwhile, GBP/USD maintains higher lows near 1.3280, reflecting widespread dollar selling. These interlinked patterns across major pairs indicate a systemic revaluation of the dollar rather than isolated euro strength.

Macro Divergence and Market Psychology

The macro divergence narrative remains clear: the Fed is entering a cutting cycle while the ECB holds steady. The interest rate spread between U.S. and German 10-year yields has narrowed from 160 bps in mid-2024 to 89 bps, its lowest since 2021. This narrowing spread historically aligns with stronger euro performance. Furthermore, implied volatility for EUR/USD options has dropped to 6.4%, down from 9.8% six months ago, signaling market confidence in a controlled upward trend rather than a volatile correction.
The IMF’s projection of 1.2% Eurozone GDP growth for 2026 versus 0.8% U.S. growth strengthens the euro’s macro foundation. Traders continue to favor long exposure through structured products such as bull call spreads or long EUR/USD futures around 1.1600–1.1650, seeking a risk-adjusted entry ahead of the expected Fed pivot.

Geopolitical Undercurrents Limit Upside Pace

While sentiment favors the euro, geopolitical overhangs — particularly the Russia-Ukraine conflict — continue to cap momentum. Energy dependency risks persist, and any resurgence in tensions could weigh on EUR/USD. However, European energy inventories remain at 89% capacity, and lower natural gas prices have softened one of the euro’s key vulnerabilities compared to 2022–2023 conditions.

Short-Term Forecast: Consolidation Before Breakout

EUR/USD is expected to remain range-bound between 1.1580–1.1740 ahead of the Fed decision. A dovish signal or confirmed rate cut could accelerate the breakout to 1.19–1.22, while a surprise hawkish tone may push the pair toward 1.14–1.12 support. Traders are closely monitoring Fed communication and Eurozone PMI data as the next catalysts.

Verdict: Bullish Bias – BUY on Dips Above 1.15, Target 1.22

The structure of the EUR/USD market remains decisively bullish. The pair’s ability to sustain above 1.1600 despite strong U.S. data underlines its resilience. With the dollar softening, Eurozone growth steadying, and Fed policy turning dovish, the EUR/USD trajectory favors a move toward 1.22 in Q1 2026. The verdict: BUY on dips toward 1.1550–1.1600, with an upside target at 1.22, maintaining stops below 1.12 to protect against volatility.

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