EUR/USD Price Forecast - EURO to Dollar Holds 1.1725 as Dollar Index Drops to 97.95, Fed Cuts Loom, Shutdown Risk Surges

EUR/USD Price Forecast - EURO to Dollar Advances to 1.1725 as DXY Eases to 97.95, Markets Price Fed Cuts Amid Shutdown Fears

EUR/USD Gains Ground as Dollar Weakens Under Shutdown Pressure

The EUR/USD pair traded near 1.1725 in the European session, marking its second straight advance as the U.S. Dollar Index stalled around 97.95. The move came as markets priced in heightened risk of a U.S. government shutdown, with funding set to expire midweek. Historical context is weighing on sentiment: the Congressional Budget Office estimated the 2018–2019 shutdown erased $11 billion from GDP, and traders see similar fallout if gridlock continues. Dollar weakness has provided the euro with breathing room, with buyers stepping back in after the pair briefly tested 1.1645 support last week.

Sticky Inflation Keeps Fed on the Hook for Policy Easing

August’s Personal Consumption Expenditures (PCE) data underscored how persistent inflation remains. Headline PCE rose 2.7% year-over-year, up from 2.6% in July, while core PCE stayed elevated at 2.9%. On a monthly basis, headline gained 0.3% and core 0.2%. These figures remain above the Fed’s 2% target, yet markets are firmly betting on more accommodation. Futures markets now assign a 90% chance of a cut in October and nearly 65% odds of a second in December, pushing Treasury yields lower and weakening the dollar’s appeal. That dovish tilt is acting as a tailwind for the euro despite lingering concerns about Europe’s growth outlook.

ECB Caution Provides a Base for the Euro

The European Central Bank has opted to hold rates steady for two consecutive meetings, signaling that its easing cycle may be nearing an end. Eurozone data remain mixed—services PMI shows resilience while manufacturing continues to contract. Still, the ECB’s restraint has helped anchor the euro, with investors concluding that Frankfurt is unlikely to unleash fresh stimulus just as the Fed is preparing to ease further. This divergence has offered the EUR/USD pair a relative advantage, allowing it to stabilize despite structural challenges in the bloc’s industrial sector.

Technical Crossroads at $1.1740

From a charting perspective, EUR/USD is hovering just under heavy resistance at $1.1740, with the 50-SMA at $1.1734 and the 100-SMA at $1.1737 forming a confluence zone. The pair has already rebounded from the $1.1650 area, with price action showing a bullish “three white soldiers” pattern, a traditional signal of strong momentum. However, repeated upper wicks in recent candles reflect selling interest at higher levels. If buyers clear $1.1740 decisively, the path opens toward $1.1780 and potentially $1.1820. Failure at this zone risks a retreat back to $1.1690, and deeper losses could revisit $1.1650.

Investor Positioning and Market Psychology

Sentiment indicators confirm a market at a tipping point. The RSI sits near 57, suggesting further upside room without being overbought, but the balance remains delicate. Traders are cautious heading into Friday’s nonfarm payrolls release, especially since a government shutdown could delay or disrupt economic data. The labor report is pivotal: stronger-than-expected hiring would weaken the case for imminent cuts and bolster the dollar, while a soft report would confirm dovish expectations and send EUR/USD higher.

Macro Risks: Tariffs and Trade Politics Add Volatility

Beyond monetary policy, trade dynamics are shaping the outlook. The Trump administration has announced a 100% tariff on patented pharmaceuticals and a 25% tariff on heavy-duty trucks. Meanwhile, the European Commission is preparing countermeasures with levies between 25% and 50% on Chinese steel imports. These actions introduce fresh volatility into global currency markets, and the euro is particularly sensitive given the region’s manufacturing struggles. A prolonged standoff could undermine Europe’s export sector, limiting the euro’s upside potential even if the Fed eases aggressively.

Medium-Term Outlook and Decision

The combination of U.S. shutdown risk, sticky inflation, and a dovish Fed has tilted momentum in favor of the euro. Yet, Europe’s structural headwinds and looming tariff battles prevent a one-sided outlook. With EUR/USD trading at 1.1725 and resistance at 1.1740 in sight, the setup favors further upside if buyers can break through. In the near term, the balance of risks suggests a Buy stance, targeting 1.1780–1.1820, but traders must watch 1.1690 support as the pivot line. A break below that level would quickly shift the bias back toward a retest of 1.1650 and even 1.1610.

That's TradingNEWS