EUR/USD Price Forecast: Euro Builds Strength as Fed Weakness Sets Up 1.20 Test

EUR/USD Forecast: Euro Targets Breakout as Dollar Weakens Ahead of Fed Data

EUR/USD Steadies Above 1.16 With Bullish Structures in Play

The EUR/USD pair has held firm above 1.1600, showing resilience even as political turmoil and mixed U.S. macro data weigh on the dollar. The euro currently trades near 1.1640, up from last week’s low at 1.1580, with momentum shifting back toward the upside. Futures positioning from large speculators continues to build net-long exposure, keeping the broader structure tilted bullish as August comes to a close.

The European Sentiment Indicator (ESI) remains subdued overall at 95.8, but inflation expectations within the survey are rising sharply. Consumer price expectations jumped 3.8 points, the fastest monthly increase in three months, while selling price expectations climbed 3 points, the strongest rise in nearly three years. These signals reduce the urgency for the European Central Bank (ECB) to cut rates, offering the euro a fundamental backstop against the dollar.

Fed Uncertainty Pressures the Dollar, Lifts the Euro

On the U.S. side, the Dollar Index (DXY) is struggling to regain momentum, trading near 98.15, just above its critical support at 97.70. Traders are now pricing in an 87% probability of a Fed rate cut in September, according to the CME FedWatch tool, after political tensions escalated with President Trump’s move to dismiss Fed Governor Lisa Cook. With monetary independence questioned and rate cut expectations building, the dollar’s defensive appeal has weakened, creating space for EUR/USD to climb.

Upcoming data could dictate the next leg. Friday’s PCE inflation report, the Fed’s preferred gauge, is projected at 2.9% year-on-year, slightly above June’s 2.8%. A soft reading would reinforce dovish bets and extend dollar weakness, while a stronger figure risks pulling EUR/USD back below support. For now, sentiment favors euro bulls.

Futures and Positioning Signal Upside Potential for EUR/USD

Commitment of Traders (COT) data shows steady growth in gross-long euro futures, while gross-short positions remain relatively subdued. This positioning dynamic allows net-long exposure to rise in tandem with price, without triggering contrarian signals that usually flash at extremes. The structure points to more upside ahead, provided the euro can break through near-term resistance.

Technical Analysis: Inverted Head-and-Shoulders Hints at Breakout

From a technical perspective, EUR/USD is tracing out an inverted head-and-shoulders pattern on the daily chart. The neckline rests near 1.1716, and a confirmed breakout above that level could project gains toward 1.1788–1.1800 in the near term. If momentum continues, the broader upside target sits closer to the 1.20 handle, aligning with the July and October 2021 highs.

Support remains layered below. The recent swing low at 1.1580 marks the first defensive line, followed by 1.1527, with a more critical base at 1.1450. Price action has so far respected these zones, with false breaks below the 50-day EMA quickly bought back. On the upside, a clean daily close above 1.1716 would confirm the bullish reversal, giving buyers confidence to push higher.

September Outlook: Bullish Bias Strengthens for EUR/USD

As positioning builds, inflation expectations climb in the eurozone, and Fed uncertainty lingers, the EUR/USD forecast skews toward further upside in September. A confirmed breakout above 1.1716 would expose 1.1750–1.1800, while sustained momentum could extend to 1.20.

On the downside, a failure to hold 1.1580 would risk a pullback toward 1.1527, and a break of that level could shift sentiment bearish into the low 1.14s. For now, however, the balance of risks tilts bullish, with the dollar’s political and policy challenges giving the euro a structural advantage heading into Q4.

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