Insights 
VT 
Key Points
- EUR/USD holds above 1.165, near its highest since mid-October.
- ECB’s Schnabel signals upside risks to growth and inflation, reinforcing hawkish bias.
- Markets price in a 90% chance of a Fed rate cut this week.
The euro traded steady around 1.1650, hovering near its highest level since mid-October, as market participants digested diverging policy signals from the European Central Bank and the US Federal Reserve.
Recent price action reflects a cautiously bullish tone, with the pair rebounding over 5.3% since hitting a low of 1.1064 in May.
Comments from ECB Executive Board member Isabel Schnabel helped anchor euro strength. She said she was “comfortable” with market bets on a potential rate hike next year, warning that both growth and inflation risks are now tilted to the upside.
Schnabel also hinted that the ECB’s December economic forecasts may be revised higher, strengthening the case for a longer hold on policy.
This stance reflects a broader shift in tone at the ECB, where policymakers appear increasingly reluctant to commit to any easing cycle.
With eurozone inflation now tracking close to the 2% target, the ECB is expected to maintain current rates through 2026, barring a sharp downturn in data.
Fed Cut in Focus as Labour Cools
On the other side of the Atlantic, the narrative is firmly dovish. Markets now price in a 90% probability of a 25-basis-point cut from the Fed this Wednesday, followed by two to three more cuts in 2026, as US economic data continues to slow.
Recent indicators point to softening in the labour market. The ADP private payrolls report showed a drop of 32,000, while Challenger layoffs hit 71,000 in November, bringing the year-to-date total to over 1.17 million. These figures increase pressure on the Fed to act pre-emptively as growth moderates.
Despite these headwinds, initial jobless claims fell to a three-year low, though seasonal factors around Thanksgiving likely distorted the data. Investors are now focused on the September PCE Index due later today.
Technical Analysis
EURUSD is trading at 1.16507, continuing its gradual recovery after forming a base around the 1.1500 level in mid-November. The pair has broken back above its 5-, 10-, and 30-day moving averages, signalling a shift in short-term momentum toward the upside.
The moving averages are starting to align bullishly, with the 5-day MA crossing above the 10-day — a sign that buyers are regaining control.
The MACD has crossed above the signal line, and the histogram has flipped positive, supporting the bullish bias. Price is now approaching the next key resistance at 1.1700, with a break above that zone potentially opening the path toward 1.1800–1.1850.
However, the high from October at 1.19181 remains a major ceiling unless supported by a broader shift in USD dynamics.
Support is now seen at 1.1600, followed by 1.1500, where the pair previously bottomed out. As long as EURUSD holds above these levels and maintains momentum, the bias leans bullish into year-end.
Cautious Forecast
The euro’s near-term outlook will hinge on two central bank narratives diverging at full pace. A hawkish ECB paired with a cutting Fed may provide a tailwind for EUR/USD to extend toward 1.18 in the coming weeks.
However, if US inflation surprises the upside in the PCE report, or if the Fed maintains a cautious tone despite cutting, upside in the euro may stall around 1.17. Traders should remain alert to incoming central bank commentary and labour market trends.
Learn more about trading Forex on VT Markets today.
