EUR/USD Price Forecast - EURO to Dollar Steadies at 1.1620 Ahead of Fed Cut and ECB Decision

EUR/USD Holds Near 1.1620 as Traders Brace for Fed Cut and ECB Caution

The EUR/USD pair steadied around 1.1620, extending its narrow trading pattern for a fourth consecutive session as markets balanced dovish Federal Reserve expectations with cautious European sentiment. The euro found modest support after ECB policymaker José Luis Escrivá signaled confidence that interest rates are “appropriately set,” effectively ruling out additional tightening for now. Meanwhile, improved risk sentiment from U.S.–China trade progress helped risk assets advance, pushing European equities higher and temporarily weakening the dollar. Still, both sides of the Atlantic face pivotal events this week that could reshape the pair’s trajectory—most notably the Federal Reserve’s October 29 meeting and the ECB’s monetary policy statement.

Soft U.S. Inflation and Trade Developments Pressure the Dollar

Recent inflation data confirmed cooling price pressures in the United States. Headline CPI rose just 0.3% in September, keeping the annual rate at 3.0%, slightly below the 3.1% forecast. The core CPI climbed 0.2% month-on-month, marking its slowest pace in over a year. That softness reinforced expectations of a 25-basis-point Fed rate cut, now priced at nearly 98% probability by the CME FedWatch Tool. Treasury yields slipped as traders rotated toward riskier assets. At the same time, renewed optimism surrounding a U.S.–China trade framework—pausing 100% tariffs and relaxing rare-earth export restrictions—strengthened global sentiment. Treasury Secretary Scott Bessent described the agreement as “substantial progress,” adding that “no new tariffs are planned.” These developments pulled the U.S. Dollar Index (DXY) back toward 105.80, a mild retracement from last week’s 106.40 peak.

Eurozone Data and ECB Messaging Keep Caution in Play

Stronger-than-expected Eurozone PMI readings provided short-term relief for the euro, hinting that regional activity may be stabilizing after months of contraction. However, inflation across the bloc remains subdued, giving the ECB little incentive to alter its current stance. With German IFO Business Climate data due this week, traders expect fresh insight into industrial resilience after a year of underperformance. Escrivá’s comments that “rates are appropriately positioned” underscored the ECB’s cautious approach, suggesting no immediate pivot toward easing even as the Fed prepares to cut. The policy divergence could restrain EUR/USD upside beyond 1.1680–1.1740, especially if the Fed strikes a less dovish tone than markets anticipate.

Technical Landscape: Range-Bound but Leaning Bullish

From a technical standpoint, EUR/USD continues to consolidate between 1.1580 and 1.1680, a range that has dominated since mid-October. The 20- and 50-period EMAs sit near 1.1620 and 1.1645, forming a tight cluster that reflects indecision. A daily close above 1.1650 would expose 1.1684, followed by the 1.1737 Fibonacci retracement zone, where prior highs from early October converge. On the downside, support remains firm at 1.1580, with a secondary floor at 1.1539, which marked the month’s low. Momentum indicators are neutral to mildly constructive: the RSI near 51 signals slight bullish bias, while the MACD shows flattening negative momentum—an early sign that sellers are losing strength. Still, a failure to sustain above 1.1645 risks sending the pair back toward 1.1570–1.1550, where buyers have previously defended the euro.

Macro Risks: Fed, Fiscal Politics, and Trade Headlines

The next 72 hours may prove decisive for short-term direction. The Federal Reserve is widely expected to deliver a quarter-point rate cut, marking its second consecutive reduction. The market focus will be on Chair Powell’s statement—any hesitation to commit to a dovish path could trigger renewed dollar strength. On the European side, political friction in France is resurfacing as the Socialist Party considers a no-confidence motion over proposed tax reforms, threatening to unsettle investor sentiment just as the euro attempts stabilization. Meanwhile, ongoing U.S. government shutdown delays key data releases, including durable goods and housing figures, reducing near-term clarity for dollar positioning. Overlaying all this is the Trump–Xi meeting scheduled later this week in South Korea, where the two leaders are expected to formalize the trade framework. Markets anticipate a symbolic “handshake deal” to reinforce easing tensions.

Market Positioning and Sentiment Indicators

Futures data from the CFTC shows speculative accounts trimming net euro shorts for a second straight week, reducing bearish exposure by roughly 8,500 contracts, the largest weekly shift since July. Implied volatility in EUR/USD options has dropped to an 11-month low, signaling complacency despite the looming event risk. That calm could unwind quickly if either the Fed or ECB surprises markets. Cross-asset flows underline a moderate risk-on tilt—European equities rose 0.6%, while S&P 500 futures gained 0.9%, suggesting investors are positioning for dovish policy outcomes. Meanwhile, Treasury yields at 4.02% and a softening dollar index reinforce the short-term bias toward euro strength

Outlook: EUR/USD at Crossroads Ahead of Policy Shifts

The fundamental landscape remains finely balanced. Softer U.S. inflation and trade optimism argue for a weaker dollar, while lingering eurozone stagnation and political uncertainty cap enthusiasm for sustained euro rallies. If EUR/USD clears 1.1680 on a closing basis, momentum could carry toward 1.1730–1.1750, confirming a near-term breakout. However, renewed strength in the greenback or a hawkish surprise from the Fed could push the pair back below 1.1580, reopening the door to 1.1539 and possibly 1.1470. In the medium term, the divergence between a cutting Fed and a static ECB provides asymmetric upside potential for the euro once U.S. easing fully unfolds.

Verdict: EUR/USD – Short-Term Hold, Medium-Term Buy

Given the current structure, EUR/USD remains a Hold in the near term, awaiting confirmation from the Fed. A dovish rate cut paired with benign trade developments would validate a Buy bias into 1.1730–1.1800. Should the Fed push back against further easing or U.S. yields rebound, traders may re-enter shorts toward 1.1550. The pair’s medium-term equilibrium tilts bullish as U.S. monetary divergence matures, but near-term volatility around 1.1600–1.1650 is expected to remain elevated through the end of the weekץ

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