FX.co ★ EUR/USD

The euro weakened against the dollar during the European trading session, falling by approximately 0.12% to near 1.1460, while the dollar rebounded strongly. The euro's continued decline is primarily attributed to the dollar's sustained strength across the market, fueled by expectations of an interest rate hike by the Federal Reserve before the end of the year. Driven by this robust demand, the dollar index, which measures the dollar's performance against a basket of six major international currencies, climbed to a seven-week high near 100.50. This shift in market dynamics has prompted several major financial institutions, including UOB Group, to revise their currency forecasts. UOB economists confirmed that their updated forecast—indicating two more rate hikes by the Federal Reserve—signals a fundamental shift in the US interest rate environment. They believe that the narrowing of the interest rate differential between the US and the rest of the G10 since the end of 2024, which has exerted sustained downward pressure on the dollar index (DXY), is about to reverse, providing strong structural support for the dollar's future strength. Meanwhile, the euro faced domestic selling pressure after European Central Bank officials successfully calmed market fears of a second wave of inflation. ECB President Christine Lagarde had previously stated that authorities "have not yet seen the effects of a second wave of inflation." This reassuring statement lowered market expectations that the European monetary tightening cycle was excessive or premature, leaving the euro without strong fundamental support amid a strong dollar. Technically, the daily chart pattern for the EUR/USD pair shows a firmly established bearish bias, with the spot exchange rate trading below the key 20-day exponential moving average (EMA) near 1.1561. This EMA continues to act as strong resistance, limiting any minor intraday rallies and keeping sellers firmly in control of the short-term trend structure. At the same time, the 14-day Relative Strength Index (RSI) has fallen to 32.8, hovering just above the commonly accepted oversold level. This reading confirms that while the bearish momentum continues to dominate and significantly influence current market movements, its very weak level suggests a potential slowdown in the pace of decline.

Considering the short-term structural boundaries, the simplest path forward requires a break and sustained move above the 20-day exponential moving average (EMA) at 1.1561 to dispel current bearish sentiment and pave the way for a broader corrective rally. Conversely, downside risks remain; should the EUR/USD pair fail to hold the current support level and fall below its September 17 low of 1.1456, its decline could accelerate towards the key psychological support level of 1.1500, potentially exacerbating structural weaknesses. Market participants will continue to closely monitor upcoming macroeconomic data and central bank statements to determine whether the policy-driven dollar rally will persist or whether technical oversold conditions will establish a sustained bottom for the euro.