EUR/USD Price Forecast: Euro Near $1.18 as ECB Holds Line, Fed Cuts Loom
The Euro extended its upward momentum during the European trading session with the EUR/USD pair hovering around $1.1770-$1.1780.
Quick overview
- The Euro is gaining strength, with the EUR/USD pair trading around $1.1770-$1.1780 as investors react to the European Central Bank's decision to maintain interest rates at 2.0%.
- President Christine Lagarde's cautious remarks have led to expectations that interest rates will remain stable until mid-2026, providing support for the Euro.
- In contrast, the US dollar is under pressure following the Federal Reserve's recent rate cut, with futures markets anticipating additional cuts next year.
- The technical outlook for EUR/USD remains positive, with key support at $1.1730 and resistance at $1.1805, suggesting potential for further gains.
The Euro extended its upward momentum during the European trading session with the EUR/USD pair hovering around $1.1770-$1.1780. Investors are still trying to make sense of signals from the European Central Bank after it announced it’s likely to keep interest rates on hold for a bit longer. The ECB did stick to its main policy rate at 2.0%, the same rate they’ve been at since June, and slightly tweaked their growth and inflation forecasts upwards, which gives some people more confidence in the Eurozone’s ability to keep chugging along.
President Christine Lagarde sounded a cautious note, saying there’s still a lot of uncertainty out there but didn’t commit to any further easing. For some reason, in the markets, this restraint has been interpreted as a sign that they might be close to finishing off their rate-cutting cycle. So now expectations are that interest rates will stay the same through the middle of 2026, which is giving the Euro a steady anchor to hold onto.
Fed Rate-Cut Expectations Pressure the Dollar
Meanwhile, in the US, the dollar is taking a bit of a hit following the Federal Reserve’s 25-basis-point cut back in December, which brought the federal funds rate down to 3.50%–3.75%. While Jerome Powell is trying to stay calm and wait for the data to decide what to do next, more and more investors are starting to doubt whether the Federal Reserve will stick with this restrictive policy for too much longer.
Even though the Fed’s “dot plot” suggests only one more cut in 2026, futures markets are pricing it differently. CME’s FedWatch has traders pricing in two or more cuts next year, because things are cooling down a bit on the labor and inflation fronts. This growing gap between a steady ECB and a more relaxed Fed is still weighing on the dollar.
EUR/USD Technical Picture Remains Constructive
From the charts, we can see that the EUR/USD pair is hovering near $1.1772 on the 4-hour chart, and this is actually a pretty clear sequence of higher lows in the shape of a rising channel that’s been guiding the price action since late November. And just to be clear, we’re still above the 50-EMA at $1.1730 and the 100-EMA at $1.1698, which also happens to be a minor Fibonacci support zone.
The recent candles are showing that price is having a bit of a think about breaking above $1.1800 but not quite making up its mind yet – the ones with the smaller bodies and the upper wicks just below $1.1800. The momentum is still under control with the RSI sitting around 60, which suggests that the price is looking to make some more gains without getting overextended – it’s looking like a shallow bull flag, which points to a period of consolidation rather than a reversal.
Key Levels and Trade Outlook
- Resistances $1.1805 and then $1.1860
- Supports $1.1730, followed by $1.1700
As long as we hold above the $1.1730 support level, the overall bias remains upward, so a clean break above $1.1805 would likely open the door to $1.1860 and keep the Euro in a good position heading into the end of the year.
Trade idea: Buy pullbacks near $1.1735, set a price target of $1.1860, and place a stop below $1.1685.
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