Euro Stuck at 1.1400 as the Fed Outpaces the ECB and U.S. Yields Hit 2007 Highs — 1.1600 Upside vs. 1.1200 Risk

EUR/USD traded at 1.1400 on Friday, September 25, up 0.17% from the previous session, as the euro clawed back part of a two-day decline that had pushed it to its weakest level in nearly two months. The pair closed Thursday at 1.1380 and traded as low as 1.1367 to 1.1369 in the overnight and early-Asian session, the deepest print since late July. By 10:57 a.m. Central European Time, the euro was back at 1.1400, and the U.S. session held it there as the Dollar Index (DXY) eased to the 100.70 to 100.85 range, down 0.17% to 0.31% on the day, after touching 101 on Thursday, its highest level in two months.

Friday's bounce is small against the broader move. EUR/USD has fallen 2.16% over the past month and 2.57% over the past twelve months. On September 12, the pair traded at 1.16036. By September 16, the day the Federal Reserve delivered its first rate hike since 2023, it had dropped to 1.14633. It spent September 18 through 20 at 1.1486 before sliding again this week. Against the 1.1486 level at the end of last week, Friday's price leaves the euro down 0.75% for the five sessions.

The year-to-date picture shows how far the pair has come down. EUR/USD opened 2026 at 1.1750, climbed to 1.2075 on January 27, when the euro hit a four-and-a-half-year high above $1.20, and has since fallen 5.6% from that peak. It touched 1.1808 on April 16, then slid to its 2026 low of 1.1325 on June 24. Friday's price sits 3.0% below the January open and just 0.66% above the June low. The 2026 average close stands at 1.1621, 1.9% above the current level.

The thesis for this forecast runs through every section that follows. The eurozone economy is delivering its strongest data in more than three years, the European Central Bank has raised rates twice since June, and German business sentiment just posted its biggest beat in months. None of that is lifting the euro, because the United States is growing faster, the Fed is hiking faster, and U.S. yields are rising faster. The spread between the 10-year Treasury and the 10-year German Bund stands at 161 basis points, and as long as that gap holds or widens, the euro's strongest domestic fundamentals in years will not be enough to carry EUR/USD above 1.15.

Two-Month Lows on a Week of Hawkish Fed Talk and a 101 Dollar Index

The euro's decline this week came almost entirely from the dollar side of the pair. On Wednesday, September 23, the S&P Global flash U.S. composite PMI jumped to 58.4 and the services PMI hit 58.7, showing business activity expanding at its fastest pace in more than five years. The 10-year Treasury yield leapt to 5.135%, its highest since July 2007, in its largest one-day move since April 2025. A weak $70 billion 5-year Treasury auction added to the selloff. EUR/USD fell below 1.14, touching a fresh near two-month low.

Thursday compounded the move. U.S. weekly jobless claims dropped to a level last seen nearly 60 years ago. A mediocre $44 billion 7-year auction pushed the 10-year yield to 5.225% intraday. New York Fed President John Williams and Philadelphia Fed President Anna Paulson both signaled that further rate increases may be needed after the September 16 hike, and Governor Michael Barr added to the hawkish chorus. The Dollar Index climbed to 101, its highest level in two months, and is on track for a weekly gain of 1%. The euro extended its losses below 1.14.

Oil added a second layer of pressure. Brent crude jumped 3.9% on Wednesday to settle at $103.08 after Iran's president said at the United Nations that Tehran would not surrender to U.S. pressure, then rose more than 3% on Thursday to close above $106 following a Houthi missile attack on Saudi Arabia. Rising oil prices amid uncertainty over U.S.-Iran talks weighed on risk-sensitive assets, and the euro, as the currency of a major energy importer, took the hit.

Friday's partial recovery tracks the same variables in reverse. Brent fell to $105 on a report that U.S. and Iranian negotiators in New York are considering a phased deal to reopen the Strait of Hormuz and lift the U.S. blockade on Iranian ports. The 10-year Treasury yield eased to 5.169% in Asian trading before drifting back toward 5.209% after the U.S. open. The Dollar Index slipped from 101 to 100.70. EUR/USD added 20 pips to 1.1400.

The pattern is clear. Every leg lower in EUR/USD this week lined up with a jump in U.S. yields or a jump in oil. Every uptick lined up with a pullback in both. The euro is not trading on European news; it is trading on the U.S. rate path and the Middle East energy shock, and both are running against it.

1.2075 to 1.1325 and Back to 1.1400: How the 2026 Euro Rally Unwound

The euro's 2026 path is the story of a monetary policy regime that flipped in a matter of weeks. EUR/USD opened the year at 1.1750 with the ECB on hold and markets pricing steady rates through 2026. Eurozone inflation cooled sharply in January, with headline CPI easing to 1.7%, the lowest since September 2024, and core inflation falling to 2.2%, its weakest since October 2021. The euro rallied to a four-and-a-half-year high above $1.20 at the end of January, peaking at 1.2075 on January 27, after President Trump said he was unconcerned about the dollar's decline. ECB policymaker Martin Kocher warned that further euro strength could prompt the central bank to resume rate cuts, and money markets assigned a 20% probability to a September cut.

The U.S.-Iran war changed everything. When the conflict began in March, Brent crude surged, Europe's energy import bill spiked, and inflation expectations jumped on both sides of the Atlantic. Germany's 10-year Bund yield climbed above 3%, nearing its highest level since May 2011. By April 2, markets were pricing three ECB hikes in 2026, up from zero before the war. The euro held up initially, touching 1.1808 on April 16, because the ECB was expected to tighten aggressively.

The slide came as the Fed caught up. Through May and June, U.S. inflation data stayed hot and three Fed officials, Cleveland's Beth Hammack, Minneapolis's Neel Kashkari, and Dallas's Lorie Logan, began arguing for a hike. EUR/USD fell to its 2026 low of 1.1325 on June 24, even as the ECB delivered its first hike of the cycle on June 11. At that meeting, the ECB raised its deposit rate to 2.25% and projected headline inflation of 3.0% for 2026.

A brief recovery followed in August, when weak U.S. payroll data and Hormuz deal hopes pushed the dollar lower. It faded once the Fed hiked on September 16 and signaled more to come. From 1.16036 on September 12, the pair fell 1.8% in two weeks.

The lesson from the 2026 arc is that the euro rises when the market prices the ECB more hawkishly than the Fed, and falls when the reverse is true. In January, the ECB was on hold and the Fed was expected to cut; the euro hit 1.2075. In June and again this week, the Fed was moving faster than the ECB; the euro fell toward 1.13. Friday's price of 1.1400 is a direct read of where that race stands.

The Policy Gap: Fed at 3.75%–4.00% Against an ECB Deposit Rate of 2.50%

The core driver of EUR/USD is the difference in interest rates between the two currencies, and that gap is currently working against the euro.

The Federal Reserve raised its benchmark rate by 25 basis points on September 16 to a range of 3.75% to 4.00%, its first increase since July 2023, in a unanimous 12-0 vote. The median projection shows a year-end rate of 4.1%, implying at least one more hike in 2026, and 16 of 19 policymakers see at least one additional increase this year. Futures markets price a 66% to 71% probability of another quarter-point hike at the October meeting and four hikes by June 2027.

The ECB raised its deposit facility rate by 25 basis points on September 10 to 2.50%, its second hike of 2026, following the June move. The main refinancing rate rose to 2.65%. According to the ECB's June 11 monetary policy statement, which launched the tightening cycle, the Governing Council described the war in the Middle East as generating inflation pressures and staff projected headline inflation of 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028, with core inflation at 2.5% in both 2026 and 2027. The September projections kept the 2026 inflation forecast at 3.0% and raised the outlook for 2027. President Christine Lagarde called the September hike a "no brainer" but declined to pre-commit to further moves. The next ECB meeting is October 29.

The gap between the two policy rates stands at 150 basis points using the top of the Fed's range against the ECB deposit rate, or 137.5 basis points using the midpoint. Before the Fed's September hike, the gap had narrowed to 125 basis points at the upper bound. The Fed's move widened it by 25 basis points, and the market's pricing of an October Fed hike points to a further 25 basis points of widening before the ECB meets.

Market pricing for the ECB has also firmed. Money markets price at least one more 25-basis-point ECB hike by year-end, with a 40% probability of a second, and some measures show three more hikes priced by the end of June 2027. The problem for the euro is relative pace. If both central banks hike once more in October, the gap stays at 150 basis points. If the Fed hikes in October and the ECB waits until December, the gap widens to 175 basis points for six weeks. On current pricing, with a higher probability of an October Fed move than an October ECB move, the rate differential is more likely to widen than narrow over the next five weeks.

Treasuries at 5.18%, Bunds at 3.57%: The 161-Basis-Point Spread That Anchors the Pair

Policy rates set the short end. The long-end yield spread drives the flow of global capital between dollar and euro assets, and that spread is the single strongest anchor on EUR/USD right now.

The 10-year Treasury yield traded between 5.169% and 5.209% on Friday, after hitting 5.225% on Thursday, the highest level since July 2007. The 30-year bond yield touched 5.502%, its highest since June 2004. The 10-year yield is on course for a sixth consecutive weekly gain, its longest streak since November 2024.

Germany's 10-year Bund yield rose to 3.57% on September 23, its highest since June 2009. Over the past four weeks, the Bund yield has gained 32.19 basis points, and over the past twelve months, it has climbed 82.30 basis points. The move came as oil rebounded on U.S.-Iran uncertainty and eurozone PMI data came in stronger than expected. Bundesbank President Joachim Nagel said oil prices were becoming an increasingly important factor in policy decisions and left the door open to further hikes. ECB Chief Economist Philip Lane warned that another surge in energy prices could keep eurozone inflation elevated for longer.

The spread between the 10-year Treasury at 5.18% and the 10-year Bund at 3.57% stands at 161 basis points. That gap is the reason a global investor choosing between a 10-year U.S. government bond and a 10-year German government bond collects 1.61 percentage points more per year by holding dollars. For a currency pair, that differential creates a steady demand for dollars from reserve managers, pension funds, and insurers that hedge only part of their currency exposure.

The direction of that spread matters more than its level. Both yields are rising, but the Bund yield rose 32 basis points in four weeks while the 10-year Treasury rose more than 20 basis points in just two sessions this week. When U.S. yields outpace German yields, the spread widens and EUR/USD falls. That is what happened between Wednesday and Thursday.

A narrowing spread would require one of two things: a sharp drop in U.S. yields, most likely on a confirmed Hormuz deal and lower oil, or a sharp rise in Bund yields on a hawkish ECB surprise. A spread back below 150 basis points would support a EUR/USD move toward 1.15. A spread above 175 basis points would put the 2026 low of 1.1325 at risk.

Eurozone Composite PMI at 53.1: The Strongest Growth Since April 2023 Cannot Lift the Euro

The eurozone's domestic data is the best it has been in years, and the euro's inability to rally on it tells the story of this market.

The S&P Global flash eurozone composite PMI rose to 53.1 in September from 52.0 in August, far above the 51.7 consensus forecast that had called for a decline. It was the strongest reading since April 2023 and marked the third straight month of expansion. The services PMI jumped to 53.0 from 51.6, its highest in almost a year and well above the 51.5 forecast. The manufacturing PMI held at 52.7, and the manufacturing output index edged up to 53.4 from 53.3, a 55-month high. Germany expanded for a third straight month at its fastest pace in almost a year, and France returned to growth for the first time in ten months.

The details were even stronger. New orders rose at their fastest pace since May 2022, and backlogs of work rose for the first time since June 2022. Employment increased, though at a modest pace. The cost side showed the energy shock at work: input costs and output prices rose at their fastest rates in four months as firms passed higher energy bills to customers. Business confidence weakened again and remained subdued, the one soft spot in an otherwise strong survey.

Those numbers support the case for more ECB tightening. Strong demand, rising output prices, and job creation give the central bank room to raise rates without tipping the economy into recession. Markets are pricing three more ECB hikes by the end of June 2027.

The euro's problem is that the U.S. data is even stronger. The U.S. composite PMI hit 58.4 in September, 5.3 points above the eurozone's 53.1. The U.S. services PMI stood at 58.7, 5.7 points above the eurozone's 53.0. American jobless claims are near a 60-year low. U.S. core capital goods orders jumped 1.6% in August, triple the forecast. On every measure of relative growth momentum, the United States is outpacing the eurozone.

Currency markets trade relative strength, not absolute strength. A eurozone economy growing at its fastest pace in three and a half years still loses the comparison with a U.S. economy growing at its fastest pace in five. That is why EUR/USD fell 0.75% in the same week that the eurozone posted its best PMI since 2023.

Ifo at 89.9 and a 1.3% German Growth Forecast: Europe's Largest Economy Turns the Corner

Germany, the eurozone's largest economy, delivered a string of upside surprises this week. The ifo Business Climate Index rose to 89.9 in September from 88.8 in August, beating the 89.0 consensus forecast and reaching its highest level in more than three years. The expectations component climbed to 90.4 from 89.1, above the 89.3 forecast. The current assessment rose to 89.5 from 88.5, ahead of the 89.0 forecast. Companies assessed their present business situation more positively for the first time in several months.

The flash PMI data told a similar story. The German manufacturing PMI fell slightly to 53.8 in September from a more than four-year high of 54.3 in August, marginally below the 54.0 forecast, but the reading still signaled solid expansion. The manufacturing output index stood at 55.9, and factory orders posted another strong increase. Employment moved closer to stabilization, with payroll numbers recording their slowest decline since September 2023. Input-cost inflation stayed elevated on energy prices, but factory-gate inflation eased to a six-month low.

Germany's five leading economic institutes raised their joint 2026 growth forecast to 1.3% from 0.6%, more than doubling their projection. The upgrade reflects the effect of record infrastructure and defense spending: Germany planned to raise a record €512 billion in debt this year to fund those programs. The government has also decided to cut fuel taxes by €0.17 per liter from October 1 through year-end to ease the burden of high energy prices on households.

Consumers remain the weak link. German consumer sentiment deteriorated more sharply than expected heading into October, as rising energy prices weighed on households' income expectations. The European Commission's flash consumer confidence indicator for the euro area fell by 1.0 point to -16.5 in September, breaking a four-month recovery. The political fallout is visible: Chancellor Friedrich Merz's conservatives posted their worst state election result since 1949 in Mecklenburg-Western Pomerania, with voters punishing the government over living costs.

The German data strengthens the medium-term case for the euro. A German economy growing at 1.3% with rising business confidence supports ECB tightening and reduces the risk of a eurozone recession. In the near term, the strong German prints landed on the same days as hotter U.S. data and a surge in U.S. yields, and the euro fell anyway.

Brent at $105: Why the Energy Shock Hits the Euro Harder Than the Dollar

Energy prices matter more for EUR/USD than for almost any other major currency pair, because the two economies sit on opposite sides of the energy trade.

The eurozone imports most of its oil and natural gas. When Brent crude rises, Europe's import bill climbs, its trade balance deteriorates, and money flows out of euros to pay for energy priced in dollars. The United States is a net energy exporter. Higher oil prices hurt American consumers at the pump, with gasoline near $4.50 per gallon, but they also boost domestic producers and improve the U.S. trade position. The same oil shock that weakens the euro's terms of trade leaves the dollar's broadly intact.

This week's moves showed that relationship in real time. Brent jumped 3.9% on Wednesday to $103.08 and rose more than 3% on Thursday to close above $106. EUR/USD fell below 1.14 on both days. On Friday, Brent eased to $105.35 to $105.52 on the Hormuz report, and the euro recovered to 1.1400. WTI traded at $94.09, down 0.55%, after dipping to $92.90.

The ECB is fighting the same shock from a weaker position. Lagarde cited upside risks from gas prices, potential supply disruptions, and trade tensions at the September meeting. The ECB's wage tracker points to negotiated wage growth of only 2.7% in the first half of 2027, which means the eurozone inflation episode is still primarily energy-driven rather than a wage-price spiral. That makes ECB hikes a response to a supply shock, which they cannot fully control, rather than to overheating demand. The Fed faces a stronger domestic economy and can justify hikes on demand grounds as well.

The Hormuz talks are the single most important swing factor for the euro. A confirmed agreement to reopen the strait would pull Brent toward $100 or lower, ease Europe's energy import bill, cut inflation expectations, and reduce the urgency of U.S. rate hikes. All four effects favor the euro. When a U.S.-Iran ceasefire was announced in April, Bund yields dropped 15 basis points in a single session to 2.93% and markets removed one ECB hike from their forecasts. A similar de-escalation now would likely lift EUR/USD toward 1.15.

A collapse in talks would do the reverse. Brent above $110 would push the euro back toward the 2026 low.

The Dollar Index at 101: What a 57.6% Euro Weighting Means for the Pair

The Dollar Index measures the greenback against six major currencies, and the euro makes up 57.6% of the index. That weighting means DXY and EUR/USD move almost as mirror images: when the dollar index rises 1%, EUR/USD usually falls by a similar amount.

DXY climbed to 101 on Thursday, its highest level in two months, and is heading for a weekly advance of 1%. On Friday, it eased to 100.70 to 100.85. The euro's weekly decline of 0.75% closely matches the dollar index's weekly gain.

The dollar's strength this week was broad. USD/JPY pushed further above 158.00 on Thursday as the yen weakened despite the Bank of Japan's own hawkish guidance and a 10-year JGB yield at 3.062%, its highest since August 1996. The Swiss National Bank left its policy rate unchanged at 0% on Thursday, projecting 2026 inflation at 0.7%, a reminder that some European central banks are nowhere near the tightening pace of the Fed. GBP/USD traded near 1.32.

For EUR/USD, the dollar's broad strength means the euro is not being singled out. It is losing ground alongside every major currency to a dollar backed by the highest yields in the developed world. That distinction matters for the forecast: a euro-specific selloff would signal concerns about European growth or politics, which could persist. A dollar-driven move reverses quickly if U.S. yields fall.

There is a longer-term factor working in the euro's favor. The U.S. Treasury Department has been buying back long-dated bonds to stabilize the market, including $4.078 billion of 20-year and 30-year bonds on Thursday out of $10.468 billion offered. In August, the Treasury's bond market intervention revived concerns about fiscal sustainability and dollar debasement. The 10-year to 2-year Treasury spread has widened to 31 basis points, a bear steepening driven partly by concern over federal borrowing. If the bond market's focus shifts from Fed hikes to U.S. fiscal risk, the dollar could weaken even with high yields, as it did in January when the euro hit 1.2075.

For now, the rate story dominates. DXY at 101 is the ceiling to watch: a break above 101.5 would likely push EUR/USD toward 1.1325. A drop below 100.5 would open 1.1486.

Resistance Map: 1.1420, 1.1463, 1.1486, 1.1600, and the 1.1808 April High

The overhead levels for EUR/USD are closely spaced and each carries a clear reason to hold.

The first resistance sits at 1.1420, the area just above Friday's 1.1400 recovery level and the point where Thursday's breakdown accelerated. Sellers who shorted the break below 1.14 have their first risk level there. From 1.1400, it is 20 pips higher, a gain of 0.18%.

The second level is 1.1463, the September 16 close on the day the Fed delivered its hike. That level marked the first leg of the post-Fed decline and acted as a pivot through the following week. It is 0.55% above Friday's price.

The third resistance sits at 1.1486, the level where the euro held from September 18 through 20 before this week's slide. A daily close above 1.1486 would erase the entire week's decline and signal that the dollar's rally has stalled. It is 0.75% higher than 1.1400. Reaching it would likely require a confirmed Hormuz deal or a sharp drop in U.S. yields below 5%.

The fourth barrier is 1.1600, the psychological level just below the September 12 print of 1.16036. That level preceded the Fed's hike and represents the pre-hike equilibrium. A return to 1.16 would require the market to price out the October Fed move, a 1.75% gain from Friday's price.

Above that, the 2026 average close of 1.1621 marks the midpoint of this year's trading. The April 16 high of 1.1808 sits 3.6% above Friday's level and marked the last time the market priced the ECB as the more aggressive central bank. The 2026 high of 1.2075, set on January 27, is 5.9% higher and would require a full reversal of the Fed's tightening path.

The resistance structure favors sellers in the near term. The euro would need to clear three levels within 86 pips of Friday's price to reverse the week's decline, and each of those levels coincides with a specific moment when the market priced a more hawkish Fed. A rally through all of them before the October central bank meetings would require a macro catalyst, most likely from the oil market.

Support Map: 1.1367 Two-Month Low, 1.1354, the 1.1325 2026 Floor, and 1.1200

The downside levels are closer to Friday's price than the upside ones, and they are concentrated in a tight band.

The first support is 1.1367 to 1.1369, the two-month low set in the overnight session into Friday. That level held on the first test, and Friday's bounce to 1.1400 came from it. A break below 1.1367 would mark a fresh low since late July. From 1.1400, it is 33 pips lower, a decline of 0.29%.

The second level is 1.1354, the June 25 close and one of the two data points that define the 2026 low zone. It is 0.40% below Friday's price.

The third support, and the most important, is 1.1325, the 2026 intraday low set on June 24. That low came as the Fed first signaled hikes and before the ECB's June tightening had any effect on the euro. A daily close below 1.1325 would put EUR/USD at its lowest level since the end of 2025 and break the range that has held for three months. From 1.1400, it is 0.66% lower.

Below 1.1325, the next support sits at 1.1200, the round-number level that would mark a 7.2% decline from the January high. It is 1.75% below Friday's price. A move there would likely require a combination of an October Fed hike, a Dollar Index above 102, and Brent above $110, with the Treasury-Bund spread widening toward 175 basis points.

The support structure is thin. The 2026 low sits just 75 pips below Friday's price, and the two-month low is only 33 pips away. The pair has limited room before it tests the level that held through the worst of the Fed repricing in June. If that level breaks, there is no major support until 1.12.

The asymmetry between resistance and support defines the near-term risk. The euro is closer to its 2026 floor than to any meaningful resistance, and the macro drivers, rising U.S. yields, a hawkish Fed, and elevated oil, are pushing toward that floor. The one factor holding it up is the eurozone's strong data and the ECB's willingness to keep tightening.

The October Double Header: A Fed Decision and an ECB Decision One Day Apart

The next five weeks will be decided by two meetings scheduled back to back. The Federal Reserve meets in late October, with futures pricing a 66% to 71% chance of a 25-basis-point hike to 4.00% to 4.25%. The ECB meets on October 29, with markets pricing at least one more hike by year-end and a 40% probability of a second.

The four possible outcomes define the forecast range. If the Fed hikes and the ECB holds, the policy gap widens to 175 basis points at the upper bound, and EUR/USD likely breaks below 1.1325 toward 1.12. That is the most bearish combination and currently the most likely based on relative probabilities. If both central banks hike, the gap stays at 150 basis points and the euro likely holds its current range between 1.1325 and 1.1486. If the Fed holds and the ECB hikes, the gap narrows to 125 basis points, and EUR/USD likely rallies toward 1.16. If neither moves, the pair trades on oil and data.

The data calendar between now and the meetings adds several catalysts. Eurozone inflation data for September will show whether the energy shock is broadening into core prices. The ECB's wage tracker shows negotiated wage growth of only 2.7% for the first half of 2027, which suggests the answer may be no, a factor that argues against aggressive ECB tightening. U.S. payrolls and inflation data will determine whether the Fed's October hike moves from probable to certain. Final September PMIs, due October 1 for manufacturing and October 3 for services, will confirm or revise the flash readings.

ECB officials have kept their options open. Nagel said oil prices were becoming an increasingly important factor in policy decisions. Lane warned that another energy surge could keep inflation elevated for longer. Lagarde declined to pre-commit. That language leaves room for an October hike if Brent climbs further, but it also leaves room to wait if oil falls on a Hormuz deal.

The Fed's language is firmer. Williams, Paulson, and Barr all signaled more tightening this week. Chicago Fed President Austan Goolsbee argued the energy shock should be treated as persistent. With U.S. data this strong, the Fed has less reason to wait than the ECB, and that asymmetry favors the dollar into the October meetings.

EUR/USD Forecast: 1.1325–1.1486 Base Range, 1.1600 Upside Target, 1.1200 Downside Risk

The forecast for EUR/USD over the next five weeks turns on the gap between U.S. and German yields and the outcome of the October central bank meetings. The eurozone's domestic data has improved, but the pair has shown this week that it will not trade on European fundamentals while U.S. rates are rising faster.

The base case, carrying the highest probability, is a range between 1.1325 and 1.1486. The 2026 low of 1.1325 defines the floor, and the September 18 to 20 level of 1.1486 defines the ceiling. In this scenario, the 10-year Treasury yield holds between 5.0% and 5.3%, the Bund yield holds between 3.4% and 3.7%, the Treasury-Bund spread stays near 160 basis points, and both central banks deliver or signal one more hike. EUR/USD oscillates around 1.14, with Friday's price near the lower third of the range.

The bullish scenario targets 1.1600, a gain of 1.75%. It requires a confirmed agreement to reopen the Strait of Hormuz that pulls Brent toward $100, a drop in the 10-year Treasury yield below 5%, and an ECB that signals an October hike while the Fed holds. That combination would narrow the Treasury-Bund spread toward 140 basis points and push the Dollar Index below 100.5. A daily close above 1.1486 would confirm the move. A sustained shift in focus from Fed hikes to U.S. fiscal risk, the driver of January's rally to 1.2075, would extend it toward 1.1808.

The bearish scenario targets 1.1200, a decline of 1.75%. The trigger would be an October Fed hike paired with an ECB hold, a 10-year Treasury yield above 5.3%, and Brent above $110 on a collapse in U.S.-Iran talks. A daily close below 1.1325 would confirm the break and put the pair at its lowest level since late 2025.

The verdict is mildly bearish in the near term. The eurozone is growing at its fastest pace since 2023, German business confidence is at a three-year high, and the ECB is tightening. None of that has stopped EUR/USD from falling 2.16% in a month, because the U.S. economy is growing faster, the Fed is moving faster, and U.S. yields are rising faster. The 161-basis-point Treasury-Bund spread and a 150-basis-point policy gap are the anchors on the pair, and until one of them narrows, the euro will trade closer to its 1.1325 floor than to the 1.1600 level it held before the Fed hiked.

That's TradingNEWS