EUR/USD holds near $1.1665 as Fed and ECB tension drives pivotal week for FX markets

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Euro Fed and ECB tension

Highlights

Euro stabilizes above key Fibonacci levels ahead of the Fed decision.
Markets price an 88% chance of a U.S. rate cut while ECB signals diverge.
German data and ECB remarks add support to a Euro that broke its downtrend.

The pair trades inside an improving structure that leaves buyers in control for now.

Technical breakout lifts EUR/USD toward major resistance

The late-November breakout from a well-defined descending channel marked the first meaningful shift in trend since early autumn. Price reclaimed the 0.382 Fibonacci retracement at 1.1525 before extending into the 0.618 level near 1.1653, an area that has served as a magnet for price over the past three sessions. Buyers have absorbed supply on each retest, keeping momentum intact ahead of the Fed.

EUR/USD price dynamics (Source: TradingView)

The next major resistance sits at the 0.786 retracement around 1.1728, which overlaps a congestion band that capped advances through September. A break above that zone would open a path toward the summer high near 1.1822.

Momentum indicators reinforce the bullish tone. The Parabolic SAR flipped positive shortly after the breakout, and the Supertrend has rotated into a buy signal, now trailing price with rising support around 1.1504. The absence of strong rejection candles at current levels suggests buying interest is active even as the pair trades into resistance.

If EUR/USD fails to clear 1.1680 decisively, consolidation is likely, not collapse. Support sits first at 1.1550, then near the reclaimed 1.1525 area.

Fed-ECB divergence sets the tone for the week

Dollar pressure continues to build as traders price an 88% probability of a 25 basis-point cut on Wednesday. Yet the message from Jerome Powell may be more hawkish than markets expect. Higher-than-desired inflation components and uneven labor trends could prompt Powell to stress gradual, data-dependent easing, particularly as analysts anticipate increased dissent among FOMC members. That uncertainty has capped volatility but kept USD on the defensive.

The Euro has strengthened on the back of improving domestic data and hawkish messaging from the ECB. Isabel Schnabel signaled comfort with market expectations for a possible future hike, arguing that the Eurozone economy is displaying more resilience than assumed. German industrial output has delivered back-to-back monthly gains, challenging the narrative of persistent stagnation and lending credibility to the ECB’s firmer stance.

Cross-asset flows also favor the Euro. China’s stronger export data improved global risk sentiment, while U.S. futures show only a 24 percent chance of another rate cut in January. That disconnect between slowing rate-cut expectations and the broader easing narrative is helping keep USD pressured without triggering disorderly moves.

Market prepares for volatility as EUR/USD holds constructive bias

The central question for traders is whether EUR/USD has the momentum to test 1.1728 in the days ahead. A firm close above 1.1680 would clear the path toward the upper resistance zone, while failure at that level would likely lead to a contained pullback toward 1.1550.

For now, the bias favors continuation rather than reversal. Eurozone data is improving, ECB commentary is firmer than expected, and dollar positioning remains constrained by policy expectations. Unless the Fed delivers a hawkish surprise that meaningfully reshapes the rate outlook, buyers are positioned to defend recent gains and attempt an extension toward the upper part of the summer range.

Previously, we discussed how EUR/USD’s reclaim of the 1.1525–1.1650 band marked a structural shift in the pair’s trajectory. Today’s setup reinforces that view, with bulls building on the breakout and sellers struggling to produce rejection at resistance. The outlook remains constructive unless the pair falls back below the former channel top.

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