EUR/USD Price Forecast: Euro Steadies at 1.1736 With Bulls Eyeing 1.1916

EUR/USD Holds Gains Ahead of Fed and ECB Divergence

The EUR/USD pair closed the week near 1.1736, ending modestly higher by about 0.18%, supported by soft U.S. labor market data and narrowing policy divergence between the Federal Reserve and the European Central Bank. The euro briefly tested 1.1780, its strongest level since late July, before settling just below that zone. Dollar weakness dominated the narrative as jobless claims spiked to 263,000, the highest since 2021, and U.S. payrolls were revised lower by 911,000 jobs. These figures cemented expectations for a 25 bps Fed rate cut at the September 16–17 meeting, with markets assigning nearly a 93% probability, and leaving a slim chance of a 50 bps cut.

European Central Bank Policy Anchors the Euro

The ECB kept all three key policy rates unchanged, with the refinancing rate at 2.15%, the deposit rate at 2.00%, and the marginal lending facility at 2.40%. President Christine Lagarde emphasized that the disinflation process is complete, calling policy “in a good place.” Updated forecasts now show headline eurozone inflation at 2.1% in 2025, 1.7% in 2026, and 1.9% in 2027, with GDP expected to grow 1.2% in 2025, 1.0% in 2026, and 1.3% in 2027. Core inflation is projected at 2.4% next year before easing below 2% in 2026. The euro found support in these revisions, especially as the Fed’s easing bias contrasts with the ECB’s meeting-by-meeting stance.

Yield Spreads and Fair Value Overshoot

The rally in EUR/USD has gone beyond what yield spreads imply. The U.S. 10-year Treasury to German Bund spread has narrowed, but spot levels briefly traded nearly 7% above spread-implied fair value, the largest overshoot since 2017. Currently, the gap has moderated to 2.6%, still leaving EUR/USD elevated versus fundamentals. Technical analysts note that as long as the pair holds above the 50-day SMA at 1.1659, the structure remains bullish. Immediate resistance stands at 1.1788; a close above would open 1.1829 and the 2025 projection of 1.1916. On the downside, the 20-day SMA at 1.1677 and the September low near 1.1630 are key supports.

Macro and Geopolitical Factors Weighing on the Dollar

Dollar sentiment is being eroded not only by weak labor data but also by political turbulence. Reports of attempts by Donald Trump to remove Fed Governor Lisa Cook raised concerns over central bank independence. Meanwhile, tariffs imposed earlier this year and persistent trade frictions with Europe continue to dampen the U.S. growth outlook. In Europe, the introduction of a joint defense program and the exclusion of defense spending from Germany’s debt brake have supported the euro. Traders also note speculation over a potential Russia-Ukraine peace framework, with Ukrainian bonds rallying and the UBS Ukraine Reconstruction Index reaching record highs. These shifts in geopolitical risk are indirectly strengthening the common currency.

Technical Outlook and Long-Term Structure

From a technical standpoint, EUR/USD has built a sequence of higher lows since mid-August, confirming bullish momentum. The RSI on the daily chart remains neutral but supportive, while the MACD histogram shows fading bearish divergence. In the bigger picture, the recovery from the 2022 bottom at 0.9534 has created a structural base. As long as the 55-week EMA at 1.1174 holds, the long-term projection targets 1.1916 in the medium run, with a possible extension to 1.2019, the 38.2% retracement of the 2008 high at 1.6039 to the 2022 low. If that level is breached, the path opens toward 1.3554, though that scenario requires sustained ECB outperformance relative to the Fed.

Market Positioning and Forecast Bias

Positioning data shows traders leaning bullish on EUR/USD into the Fed meeting, with longs expanding on expectations of policy divergence. Fitch forecasts two Fed cuts in 2025—September and December—followed by three more in 2026, while it sees no ECB cuts in the same period. This divergence continues to support a stronger euro, especially as U.S. inflation remains at 2.9% headline and 3.1% core, levels that leave the Fed room to ease further without destabilizing price stability. Analysts caution, however, that the euro’s extended run above yield-implied fair value could make it vulnerable to a pullback if the Fed surprises with a 50 bps cut or if U.S. data stabilizes.

Based on technical resilience above 1.1700, narrowing yield spreads, and the Fed’s clear tilt toward easing, the EUR/USD outlook is bullish. The bias favors continued upside with targets at 1.1788, 1.1829, and the projection zone around 1.1916. Any dip toward 1.1670–1.1630 should find strong support, keeping the broader uptrend intact. The evidence from macro policy, spreads, and market positioning suggests a Buy stance on EUR/USD, with medium-term upside skewed toward 1.20–1.21 levels if the Fed delivers as expected.

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