The EUR/USD pair is currently stabilizing around the 1.1580 level, consolidating following a significant three-session rally from 1.1420. This movement has been influenced by a notable repricing in Federal Reserve rate expectations and a positive shift in risk sentiment across Europe. The pair has successfully regained essential levels within the range of 1.1550–1.1600, surpassing its descending channel for the first occasion since October. This indicates a significant change in momentum, with markets now reflecting an 84% probability of a Fed rate cut in December, the highest level observed this year, based on data. The euro’s strength is largely underpinned by deteriorating U.S. economic indicators, as evidenced by retail sales increasing merely 0.2% in September compared to the 0.4% consensus, core PPI declining to 2.6% from 2.9%, and consumer confidence plummeting to 88.7, marking its lowest level since May. The indicators collectively pointed to a decelerating U.S. economy, resulting in significant downward pressure on the U.S. Dollar Index, which has decreased by 0.6% over the last three days, currently trading around 103.1. Technical positioning indicates a change in momentum. The pair is currently trading above its 20-day EMA at 1.157, with the 100-day EMA positioned slightly below the current price at 1.156, providing short-term support. The 50-day EMA at 1.160 serves as the next significant resistance level, while the RSI at 57 reflects a stable and measured momentum, avoiding signs of overextension. A significant breakout above 1.1600 may pave the way toward 1.1650 and 1.1710, which align with the 0.5 and 61.8 Fibonacci retracements from the July highs.
The U.S. 10-year Treasury yield has decreased to below 4.02%, strengthening market belief that a shift in monetary policy is imminent. Recent reports indicate that Kevin Hassett, recognized for his support of rate reductions, may succeed Jerome Powell as Fed Chair in May — a political shift that is exerting pressure on the dollar. The interplay of declining economic indicators and leadership instability has prompted a notable shift in sentiment towards the euro. Market participants are currently anticipating two possible rate reductions in the first half of 2026, as the ECB continues to uphold a consistent policy approach. Joachim Nagel of the Bundesbank acknowledged persistent inflationary pressures in the services sector while emphasizing that policy decisions will continue to be guided by data, avoiding any preemptive dovish stance. The contrast between the Fed’s anticipated easing and the ECB’s measured approach presents a fundamental advantage for the euro as we approach year-end. Despite the technical breakout, the European Central Bank’s Financial Stability Review introduced a note of caution into the market. The ECB has indicated that there are significant risks to financial stability in Europe, especially due to the high levels of sovereign debt in southern economies. The remarks constrained the euro’s upward movement early Wednesday, maintaining price action below 1.1600. ECB President Christine Lagarde and board member Philip Lane are anticipated to provide additional insights later this week, with traders closely monitoring for any indications regarding policy direction.
Nonetheless, EUR/USD persists in attracting buyers during pullbacks. Enhanced geopolitical sentiment — especially updates regarding advancements in Russia-Ukraine peace negotiations, with U.S. envoy Steve Witkoff anticipated to engage with Vladimir Putin next week — has strengthened risk appetite. The market response has been positive for the euro, given that a stable geopolitical environment diminishes the demand for the dollar as a safe haven. The daily structure of EUR/USD has shifted to a clearly positive outlook. The pair’s recovery to 1.1480, aligning with the 23.6% Fibonacci retracement, indicates a short-term reversal has been confirmed. An advance beyond 1.1560 has positioned the pair within the 38.2% retracement zone, a pivotal level that has consistently influenced direction over the past four months. Maintaining levels above 1.1600 would reveal the resistance range of 1.1650–1.1710. Conversely, if the 1.1550 level is not sustained, the pair may decline towards 1.1480, and further below, the long-term trendline support at 1.1420. The MACD has crossed above zero for the first time in a month, indicating a strengthening bullish trend. The Parabolic SAR indicators have shifted below the price action, a trend that has typically foreshadowed short-term gains ranging from 0.7% to 1%. If the buying momentum persists, the subsequent bullish target zone is positioned at 1.1670, coinciding with the October highs and the upper boundary of the descending channel.
European data presents a range of signals, yet it continues to demonstrate a degree of resilience in comparison. Germany’s industrial output showed a 0.4% month-over-month increase, whereas the eurozone PMIs continue to register below 50, indicating a slight contraction in the region. Nonetheless, increasing real wage growth in core economies, along with moderating energy costs, is mitigating the effects of declining exports. Political risk continues to pose a slight challenge. Credit Agricole indicated that fiscal challenges in France may resurface in late 2025, potentially constraining euro appreciation into early 2026. In light of this, capital inflows into European equities and bonds have shown significant improvement — net inflows totaled €21.4 billion in October, marking the highest level since 2021. This rotation has bolstered the euro through heightened demand for euro-denominated assets. The primary factor continues to be the U.S. aspect of the equation. The current pricing of Fed funds futures indicates an 84% probability of a 25-bps rate cut in December, with an overall expectation of 75 bps of easing by mid-2026. The swift adjustment in pricing has led to a depreciation of the dollar overall, as evidenced by the Dollar Index declining from 104.2 to 103.1 within a week. In the meantime, projections indicate that durable goods orders will increase by only 0.3% in October, a significant decline from the 2.9% observed in September. Additionally, jobless claims are anticipated to rise to 225,000, up from 220,000, which further suggests a softening labor market. This environment poses challenges for USD buyers in maintaining upward momentum.
The reports shows that speculative net long positions in the euro have increased to 76,000 contracts, marking the highest level since March 2024. Spot market volumes indicate a comparable sentiment: more than $1.1 trillion in EUR/USD transactions took place in the last 24 hours, exhibiting a 59% buyer bias, which suggests robust institutional interest in the 1.1550–1.1600 range. The Fear & Greed Index for currencies has risen to 63, reflecting a moderate level of risk appetite. While this indicates potential short-term strength for the euro, it simultaneously increases the likelihood of a pullback should U.S. data exceed expectations. Immediate resistance is positioned between 1.1600 and 1.1625, a concentrated area that integrates the 50-day EMA, the 38.2% retracement level, and the upper boundary of the descending channel. Additionally, the levels of 1.1657 and 1.1710 represent the forthcoming areas of examination. On the downside, 1.1550 serves as the initial pivot support, with subsequent levels at 1.1500 and 1.1425, aligning with previous swing lows. A sustained break above 1.1600, accompanied by volume confirmation, would initiate a rapid advance toward 1.1720, consistent with the 78.6% retracement from the July-to-October downtrend. A decline below 1.1550 would bring the 1.1480 area back into focus, with the possibility of revisiting 1.1420, a level where significant institutional support was previously established.