EUR/USD Price Forecast: Euro Pushes Past 1.16 as Fed Cut Bets Surge to 87%, German Inflation Data Hits 2.6%

EUR/USD Price Forecast - Extends Recovery as Rate Cut Bets Dominate Market Sentiment

The EUR/USD pair ended the week around 1.1601, gaining 0.81% for the week and 0.59% for November. The move follows renewed weakness in the US Dollar Index (DXY), which slipped to 99.44 as traders boosted expectations for a 25-basis point rate cut at the December FOMC meeting. Fed officials John Williams and Christopher Waller reinforced this dovish stance, pushing rate-cut odds to 87% according to the CME FedWatch Tool.

This repricing of US policy has widened the yield gap between Europe and the U.S., strengthening the euro. The Federal Reserve’s recent comments emphasize risk management over inflation fighting, contrasting with the European Central Bank (ECB), which signals a pause but not yet a reversal of its tightening path.

German CPI Surprise Reinforces Euro Resilience Amid Dollar Weakness

Germany’s Harmonized Index of Consumer Prices (HICP) for November rose 2.6% year-over-year, exceeding the consensus of 2.4%, marking a significant uptick from 2.3% in October. Meanwhile, French GDP grew 0.1% QoQ, and Spain’s inflation hit 3.1%, slightly above estimates. These readings suggest that European inflation remains persistent, making the ECB less inclined to ease aggressively in early 2026.

The divergence in inflation trajectories between Europe and the U.S. — with the core PCE index in the U.S. dropping to 3.5%, a two-year low — has been pivotal for EUR/USD momentum. The Euro’s short-term technical structure shows solid demand near 1.1550 support, while buyers aim to push toward 1.1650–1.1700, where the 50- and 100-day moving averages converge.

Technical Landscape: Euro Eyes Breakout Toward 1.17 Zone

The EUR/USD pair’s relative strength index (RSI) remains mildly positive but flattening near 56, indicating momentum consolidation rather than exhaustion. Key resistance stands at 1.1650, followed by the 1.1700 handle, a level aligned with the October highs. On the downside, immediate support sits at 1.1550, followed by 1.1500 and 1.1468 — the early November swing low.

A daily close above 1.1620–1.1643 (50/100-day SMA cluster) would confirm continuation toward 1.17, with potential acceleration if US yields continue to retreat below 4.1% on the 10-year Treasury.

Market Positioning and Volatility Trends

Implied volatility for EUR/USD rose to 7.5%, reflecting heightened uncertainty ahead of upcoming U.S. ISM, ADP employment, and inflation reports. Trading volumes remain subdued following the Thanksgiving holiday, but institutional flows suggest accumulation of euro positions. Option traders favor short-dated EUR/USD calls targeting 1.1650–1.17, reflecting confidence in near-term bullish momentum.

Meanwhile, large speculative positions in CFTC data indicate euro longs expanded by 18,000 contracts last week — the largest build since August — signaling renewed conviction that the dollar’s cyclical strength is fading.

Macro Divergence: Fed Easing Path vs. ECB Pause Supports the Euro

Markets now price in three Fed rate cuts by mid-2026, while the ECB’s tightening cycle appears complete but with no imminent easing. This policy gap underpins structural euro strength as the dollar continues its corrective phase from the DXY 100.22 resistance area.

The euro’s fundamental backdrop remains stronger than its short-term volatility suggests. The region’s trade surplus widened to €23.4 billion, while the U.S. twin deficits persist. The widening fiscal gap and Fed’s dovish stance reinforce downside risks for the USD, keeping EUR/USD supported in the 1.1550–1.17 band through December.

Outlook and Trading View: Euro Bias Turns Bullish

If the EUR/USD pair sustains above 1.1600, technical and macro alignment favors further upside. A confirmed breakout over 1.1650 opens the way to 1.17–1.1720, while failure to hold 1.1550 could trigger a retracement to 1.15, where major buyers likely re-emerge.

With dovish Fed expectations at 87%, elevated volatility, and Eurozone inflation surprising higher, the bias remains bullish for December. Traders should monitor the December ISM PMI and German CPI revisions for directional cues.

Verdict: Buy EUR/USD (Target 1.17–1.1720) while above 1.1550, as macro divergence and rate-cut pricing continue to weaken the U.S. dollar.

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