EUR/USD Price Forecast - EURO to Dollar Struggles at 1.1700 as U.S. Growth Tops 3.8% and Fed Cut Bets Dominate

EUR/USD Consolidates at 1.1700 as Dollar Strength Reasserts

The EUR/USD pair closed the week near 1.1700, rebounding after dipping toward 1.1650 earlier in the session. The euro regained some ground following U.S. inflation data that matched expectations, with Core PCE rising 0.2% month-over-month and 2.9% year-over-year in August. Headline PCE came in at 2.7% annually, reinforcing market conviction that the Federal Reserve will proceed with rate cuts into year-end. Futures markets now price an 88% probability of an October cut and 65% odds of another in December, providing short-term support for the shared currency. However, the rebound is capped by the dollar’s resilience, driven by stronger U.S. growth metrics, including revised Q2 GDP at 3.8% and durable goods orders rising 2.9% in August, alongside jobless claims falling to 218,000.

Divergence Between U.S. and Eurozone Data Shapes Momentum

The macroeconomic backdrop continues to favor the U.S. dollar, with the eurozone showing weaker relative performance. Eurozone PMI data revealed contraction in manufacturing, offset only slightly by expansion in services, leaving the composite PMI at 51.2. Meanwhile, German retail sales and unemployment figures due next week will be critical for direction, especially as inflation risks remain sticky. ECB surveys show households expect 2.8% inflation in one year and 2.2% over five years, reflecting lingering uncertainty that could restrain euro upside. Political and trade frictions, including ongoing tariff announcements by Washington, further cloud sentiment, particularly as U.S. fiscal policy remains stimulative through higher government spending and tax cuts.

Market Sentiment Split as Inflation Expectations Diverge

The University of Michigan sentiment index dropped to 55.1 in September from 58.2 in August, a steep fall from last year’s 70.3. The breakdown shows wealthier households with significant equity exposure reporting optimism, while lower-income consumers turned increasingly negative under the weight of tariffs and price stickiness. Short-term inflation expectations eased marginally to 4.7% from 4.8%, while long-term expectations ticked higher to 3.7% from 3.5%. This divergence keeps the Fed cautious, balancing the need to ease against the risk of reigniting inflation. For the EUR/USD, this means that while rate cut bets buoy demand for euros in the short term, structural dollar strength anchored in higher growth and fiscal spending continues to limit upside.

Technical Landscape Points to Critical Levels in EUR/USD

Technically, EUR/USD remains pinned near the 1.1700 threshold, a pivotal zone that has repeatedly capped rallies. A sustained close above 1.1750 could open the path toward 1.1800 and eventually 1.1920, the September peak. On the downside, immediate support rests at 1.1650, followed by 1.1600 and the 100-day SMA near 1.1588. A breakdown below 1.1588 would expose the pair to deeper losses toward 1.1400 and even the 200-day SMA near 1.1150. Momentum indicators remain mixed: RSI signals bearish bias despite the latest bounce, while MACD suggests slowing downside momentum. Traders are positioning cautiously, awaiting the U.S. labor report, with nonfarm payrolls expected at 51,000 jobs and wage growth at 0.3%. A downside miss would likely trigger renewed euro buying, while a strong print could drive another test of sub-1.1600 levels.

Geopolitics and Rate Differentials Keep Dollar in Control

Beyond macro data, geopolitical risks remain a latent driver. NATO’s warnings to Russia over airspace incursions keep euro traders cautious, though markets have largely priced in ongoing tensions. More pressing is the stark divergence in U.S. and eurozone monetary trajectories. While the Fed has scope to cut without stoking runaway inflation, the ECB faces an environment of weak growth, rising tariffs, and fragile household sentiment, limiting its room for maneuver. This divergence ensures that EUR/USD remains vulnerable to dollar strength, even as traders speculate on rate-driven rebounds. Near term, the balance hinges on whether the euro can reclaim and sustain momentum above 1.1700; otherwise, the broader bias remains tilted toward further downside correction.

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