EUR/USD Price Holds 1.1865 as Euro Targets 1.1900 and 1.2000 Breakout

EUR/USD Surges Toward Four-Year Highs Ahead of Fed Cut

The EUR/USD exchange rate is holding at 1.1865, only a fraction below Tuesday’s intraday peak of 1.1878, its highest level since 2021. The move extends a rally of nearly 2% from last Friday’s lows, driven by heavy selling in the U.S. dollar as markets anticipate a 25 basis point Federal Reserve cut, with futures also pricing in two additional reductions before year-end. The euro’s strength stands out as traders shrugged off stronger-than-expected U.S. Retail Sales data, which showed a 0.6% monthly rise in August and 5% year-on-year growth, both well above consensus.

Fed Policy and U.S. Macro Data Define Dollar Weakness

Investors are positioned for a dovish Federal Reserve, with the September cut seen as a near certainty. Futures markets now expect 125–150 basis points of easing through 2026, and today’s dot plot will confirm how many cuts policymakers endorse. Weak labor market data is amplifying dovish bets: jobless claims climbed to 263,000, the highest since mid-2023, while the University of Michigan consumer sentiment index hit a four-month low as tariffs raised pessimism. Despite firm U.S. consumption data—retail sales control group up 0.7% MoM—the dollar index (DXY) slid 0.71% to 96.65, reflecting positioning ahead of Powell’s remarks.

ECB Policy Divergence Keeps Euro Supported

The European Central Bank last week held its deposit rate steady at 2.00%, with President Christine Lagarde highlighting that disinflationary pressures are fading and risks to growth are more balanced. Markets have scaled back expectations of further ECB cuts, with odds of another move before spring now below 40%, giving the euro a relative advantage over the Fed. German ZEW sentiment for September improved to 37.3 from 34.7, beating forecasts of 27.3, while the Eurozone ZEW index rose to 26.1. Industrial production in the bloc edged 0.3% higher in July, reversing June’s contraction, and was up 1.8% year-on-year, signaling resilience in the manufacturing base.

French Downgrade Creates Only Limited Euro Pressure

Fitch’s downgrade of France’s sovereign rating from AA- to A+, its weakest on record, triggered brief volatility in EUR/USD, compounded by political uncertainty after François Bayrou’s resignation and Sébastien Lecornu’s appointment as Prime Minister. French bond yields adjusted higher, with the 10-year yield rising to 3.5% and the 30-year near 4.33%, but spreads remain contained, limiting systemic risk. The euro quickly refocused on U.S. policy, with Fed easing expectations overwhelming credit concerns.

Technical Setup: EUR/USD Faces Key Resistance

From a technical standpoint, EUR/USD trades in a well-defined bullish channel. Support lies at 1.1830, coinciding with the July 1 high, followed by 1.1790 and 1.1755. To the upside, resistance is clustered at 1.1885, the 161.8% Fibonacci extension of the August rally, with the psychological 1.1900 barrier looming. Momentum indicators remain constructive: RSI oscillates between 53–56, suggesting room for more upside, while the MACD shows signs of a bullish crossover. A decisive break above 1.1900 would open the door toward 1.1950 and the round 1.2000 mark.

Euro Outperformance Across Majors

This week the euro has been the strongest among G10 currencies, gaining 1.11% versus the dollar, 0.44% against the pound, and 0.43% against the Canadian dollar. Against the Swiss franc, however, it slipped 0.19%, reflecting safe-haven demand. The data confirms broad euro demand, with investors betting on policy divergence and positioning for further dollar weakness.

Market Positioning Ahead of Fed Decision

All attention now shifts to Powell’s press conference at 18:30 GMT. Traders want clarity on the pace of easing after September’s move, with the dot plot likely to show two more cuts in 2025. Any pushback against market pricing could trigger a pullback in EUR/USD, with immediate risk toward 1.1790–1.1750. Conversely, dovish guidance would cement the breakout, targeting 1.1900–1.2000.

Strategic Bias: EUR/USD Buy Rating with Defined Targets

With EUR/USD at 1.1865, the setup remains skewed to the upside. Policy divergence, improving Eurozone sentiment, and dollar softness favor continuation, provided the pair holds above 1.1830. Near-term targets are 1.1900–1.1950, with a stretch goal at 1.2000 if Powell leans dovish. Downside risk is capped at 1.1750, making risk/reward favorable for a Buy stance on EUR/USD.

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