EUR/USD Price Forecast: Path Toward $1.16 Set by ECB Hawkishness as Euro Steadies at $1.1622

EUR/USD Price Holds 1.1622 Ahead of Fed Cut, Dollar Weakness, and ECB Tightrope

Macro Positioning Of EUR/USD Ahead Of The Federal Reserve Decision

EUR/USD is trading around 1.1622, maintaining a tight consolidation range as markets brace for the Federal Reserve’s final 2025 rate decision. The pair is holding slightly above its 1.1605 support, reflecting investors’ uncertainty about whether the Fed’s 25-basis-point cut will be the last in this cycle. Futures markets now price an 89% probability of a cut to 3.50%–3.75%, while liquidity models suggest that the Fed could expand its balance sheet by $45 billion per month in 2026. Traders are sharply focused on Jerome Powell’s press conference and the updated dot plot, which will reveal whether policymakers lean toward one or two more cuts next year.
Despite this high-stakes backdrop, the U.S. Dollar Index (DXY) remains weak at 99.25, down over 7% YTD, with traders unwinding long-dollar positions built since 2022. The EUR/USD cross is benefiting from broad dollar fatigue and the absence of fresh U.S. macro data — inflation figures and the November nonfarm payrolls remain delayed due to the ongoing government shutdown. This data gap leaves the Fed navigating policy on incomplete information, creating a rare window for the euro to strengthen despite Europe’s stagnant growth profile.

ECB’s Cautious Policy Anchors The Euro’s Stability

The European Central Bank (ECB) remains firmly on hold after a string of hawkish comments from key officials. ECB Governing Council member Gediminas Simkus stated that “no further cuts are required,” citing inflation being “near target” at 2.1%, while Isabel Schnabel reinforced that monetary policy must remain restrictive “for longer” to prevent wage-driven inflation from reigniting. These statements have limited euro downside and discouraged expectations of any ECB easing in early 2026.
As a result, the yield differential between the U.S. 10-year Treasury (4.17%) and German Bund (2.32%) narrowed to 185 basis points, the lowest since May. That spread compression has underpinned the euro, keeping EUR/USD comfortably above the 1.1600 floor. European political risk remains marginally elevated — the French National Assembly’s narrow 13-vote passage of the Social Security bill underscored policy fragility but failed to trigger broad market flight from the euro.

U.S. Labor Resilience And Market Sensitivity To Wage Data

The JOLTS Job Openings report surprised to the upside, posting 7.67 million openings versus 7.14 million expected, almost matching last month’s 7.66 million. This reading suggests continued tightness in the labor market, complicating the Fed’s narrative of disinflation. However, the ADP employment change remained weak at +4.8K, while the Employment Cost Index held steady at 0.8%, reflecting slower wage momentum.
Investors expect Powell to balance these signals carefully — too dovish a tone could trigger a new euro rally beyond 1.17, while an unexpectedly hawkish tilt could push the pair back toward 1.1550. The NFIB Small Business Index improved to 99.0 (from 98.2), suggesting that despite softer inflation, U.S. businesses remain cautious about hiring and credit conditions.

Technical Landscape Of EUR/USD (EUR-USD)

EUR/USD continues to trade within a defined ascending channel, with immediate support at 1.1605 and key resistance at 1.1663. The RSI sits at 48, reflecting muted momentum but still favoring consolidation rather than breakdown. The 20-day EMA remains at 1.1620, with the pair oscillating around it since the start of the week.
Technically, a daily close above 1.1664 would trigger a bullish breakout, opening the path toward 1.1720, followed by 1.1780 — the October swing high. Conversely, a close below 1.1600 exposes 1.1579 and 1.1555, aligning with the 200-day moving average and defining the lower boundary of the structural support zone.
Price action this week has printed a double-bottom pattern near 1.1618, reinforcing near-term bullish potential. A move above 1.1664 would confirm a short-term reversal, while sustained weakness under 1.1605 would break the pattern and expose deeper downside risk into 1.15.

Dollar Index (DXY) Correlation And Cross-Market Dynamics

The DXY’s stabilization around 99.25 highlights the dollar’s short-term fragility. Despite a modest rebound after the JOLTS beat, sentiment remains skewed toward further weakness as traders anticipate Powell’s forward guidance. A close below 99.13 would confirm a renewed downtrend, while a breakout above 99.56 could extend recovery toward 99.81. This movement directly correlates with EUR/USD’s direction — each DXY pullback tends to drive the euro higher by 0.3%–0.5%.
Euro strength is also supported by falling U.S. real yields, as inflation expectations stabilize near 2.4% and nominal yields retreat. The dollar’s inability to rally in the face of mixed data implies a broader sentiment shift: investors are positioning for 2026 rate convergence between the Fed and ECB, reducing the dollar’s carry advantage.

Market Positioning, Institutional Flows, And Forward Risk

CFTC data shows that net long EUR futures positions have risen for the fourth consecutive week, now totaling 38,500 contracts, the highest since April. This accumulation comes as traders unwind long-dollar exposure accumulated through 2023–2024. Institutional accounts are reportedly reallocating into euro-denominated debt and hedging through options, with 1.1600 emerging as the key pivot in the options market. Open interest for the 1.1650 call strike surged 22% week-over-week, signaling growing expectations for upside continuation into year-end.
At the same time, corporate hedging activity within the eurozone has intensified amid uncertainty over U.S. fiscal policy and the possible reinstatement of Trump-era tariffs. This dynamic supports structural demand for euros, limiting downside even if short-term volatility increases after the Fed meeting.

Economic Calendar And Policy Catalysts Driving EUR/USD

Key upcoming events include the FOMC statement (7:00 PM GMT), Powell’s press conference, and the release of Economic Projections, which will outline the 2026 rate trajectory. In Europe, focus turns to the ECB Bulletin and German CPI final readout, expected to confirm 2.3% YoY inflation. Any deviation from target could reprice ECB expectations quickly.
Meanwhile, geopolitical variables remain in play — the euro’s sensitivity to energy markets is resurfacing as Brent crude stabilizes at $58.30, and any escalation in Ukraine negotiations could influence trade sentiment and currency correlations.

Outlook And Strategic Bias On EUR/USD

At current levels near 1.1622, EUR/USD reflects a market in transition rather than directionless drift. The combination of Fed rate cuts, ECB restraint, and shrinking yield spreads sets the stage for a medium-term bullish rotation, provided Powell avoids a hawkish pivot. Technical confirmation above 1.1664 would shift bias decisively bullish, targeting 1.1720–1.1780, while sustained pressure under 1.1600 would flip sentiment bearish toward 1.1550–1.1500.
Given the data and positioning, the risk-reward setup currently favors holding EUR/USD longs into the Fed meeting, with upside potential amplified by the dollar’s structural weakness and Fed policy uncertainty.

Verdict: HOLD with Bullish Bias — EUR/USD expected to test 1.17–1.1780 in the near term if dovish Fed tone confirms monetary convergence. Downside remains limited above 1.1550, supported by steady euro demand and fading U.S. yield premium.

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