Amid renewed positive momentum, the Euro has demonstrated a robust performance this week, bolstered by favorable yield differentials. On dependable trading platforms, the EUR/USD exchange rate increased to the 1.1675 resistance level yesterday, Wednesday, bolstered by positive trends in bond markets. Recently, bond yields (the interest rate paid on government debt) have increased more rapidly in the Eurozone compared to the United States, which is favorable for Euro trading. From a technical perspective, the EUR/USD’s approach to the 1.1675 level provides US Dollar buyers with their most favorable exchange rate since November 14. Following its low of 1.1491 on November 21, the pair has experienced a rise, closing higher for seven consecutive days.
This rally extends past the narrow descending wedge pattern that has been visible on the charts since mid-September, when the EUR/USD declined from its 2025 peak of 1.19. We also observe a breach above the 50-day Exponential Moving Average at 1.1605, which corresponds with the developing positive momentum and indicates that the multi-week lows may have been established, paving the way for a test of the 1.19 level in early 2026. Recently, we observed a rise in Eurozone bond yields mid-week following a better-than-expected inflation reading, indicating that markets are anticipating the European Central Bank will maintain interest rates at their current levels for an extended period. Economists suggest that if Eurozone inflation fails to dip below the ECB’s target in the near future, as the markets expect, then a 10-year swap rate above 3% could be a plausible outcome.
The 10-year swap rate serves as a crucial benchmark in the money market, embodying the expectations of investors and traders regarding future interest rates. This also supports a diverse array of offerings, including mortgages and corporate lending. Meanwhile, the EUR/USD pair’s gains indicate a shift in expectations regarding US interest rates, as the past seven trading days have shown a careful adjustment of forecasts for a potential rate cut by the Federal Reserve. The US interest rate market has nearly fully accounted for a third consecutive 25 basis point rate cut by the Fed this month. This will inherently exert a detrimental effect on the overall performance of the US dollar.
Consequently, we anticipate that the Federal Reserve will adopt a more assertive stance in reducing interest rates in the future, in contrast to the European Central Bank’s backing for our prediction that the EUR/USD pair will surpass the psychological resistance level of 1.2000 by 2026.