- The EUR/USD forecast remains bullish amid a weaker dollar and a resilient Eurozone economy.
- ECB officials highlight the EU’s stable inflation, pointing to a likelihood of a rate hike next year.
- All eyes are on the FOMC press conference and labour data to provide fresh impetus to the market.
The EUR/USD pair opened the week on a firm footing, trading above 1.1650 as the Dollar Index (DXY) slips below the 99.0 level after two consecutive weekly losses. The softening dollar highlights growing speculation of a 25-basis-point rate cut by the Fed on Wednesday. The CME FedWatch Tool indicates a probability of nearly 90%, up from 70% last week.
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The euro got an additional boost from upbeat German industrial output for October, showing a 1.8% MoM rise in industrial production against the estimate of a 0.4% contraction and September’s 1.3% gain. The data contradicts Q4 PMIs that suggest stagflation, helping the pair to tick up.
The sentiment was further improved by ECB member Isabel Schnabel’s commentary, which stated that she is comfortable with the bets on the next ECB move as a hike, given the Eurozone economy’s proven resilience. These remarks showed a clear divergence from the Fed’s dovish path, reinforcing the upside for EUR/USD.
On the other hand, the US Treasury yields are wobbling within a familiar range, looking for a breakout in either direction. The direction will determine the dollar’s trajectory. Meanwhile, German yields are surging due to widening rate differentials.
Looking at last week’s US data, the PCE inflation confirmed that inflation remains elevated near 3%, while core inflation eased to 2.8% from earlier 2.9%. Combined with weaker labour data, the Fed is poised to begin its full easing mode.
Yet, the path after Wednesday’s Fed rate cut remains uncertain as the split between members supporting rate cuts and warning of tariff-driven inflation will be tight. Political dynamics with a new rate-friendly Fed Chair add another layer of complexity. If the cut appears politically motivated, the long-term yields could rise rather than fall, posing a downside risk for EUR/USD.
Key Events to Watch This Week
- US JOLTs Job Openings
- FOMC Rate Decision
- ADP Weekly Employment
- US Jobless Claims
With EUR/USD supported above 1.16 but facing a binary Fed outcome midweek, volatility is expected to rise sharply. A dovish Fed could accelerate the rally toward 1.1750, while a hawkish surprise or yield spike could drag the pair back toward 1.1550.
EUR/USD Technical Forecast: Consolidating Gains
The EUR/USD 4-hour chart shows a slight downtick from the daily highs, near the 20-period MA at 1.1660. Though the overall trend remains favourable for the pair, a correction to the order block zone at 1.1630-40 is likely. The upside target for the bulls remains intact at 1.1720.
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On the flip side, the pair could find selling bias below the 1.1630 area, heading to the 200-period MA at 1.1585 ahead of 1.1550. A further downside could pose a threat to the 1.1500 level, but the probability of it being tested is low.
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