EUR/USD weakens near $1.1635 ahead of Fed rate decision and ECB policy stance

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Euro ahead of Fed decision

Highlights

- EUR/USD hovers near 1.1635 as markets brace for a Fed rate cut.

- The ECB is expected to hold rates steady, keeping policy divergence tilted to the dollar.

- Technical signals point to fading euro momentum below key resistance at 1.17.

EUR/USD remains constrained under a descending trendline drawn from the September highs, now acting as firm resistance near 1.17. On the four-hour chart, price action is battling the 200-EMA between 1.164 and 1.165—a zone that has repeatedly rejected upside attempts this week. A sustained break below this level could open the path toward 1.1628, corresponding to the 0.236 Fibonacci retracement, with the October low of 1.1539 as the deeper target.

EUR/USD price forecast (Source: TradingView)

Momentum indicators highlight the fading strength of recent euro rallies. The RSI has slipped below the neutral 50 mark, underscoring weakening buying conviction. Meanwhile, the clustering of the 20-, 50-, and 100-period EMAs near 1.163–1.1645 underscores this as a pivotal battleground for near-term direction. A decisive close beneath that zone would reinforce the bearish tone, while a breakout above 1.17 remains the key trigger for a reversal.

Fed and ECB policy divergence in focus

Markets widely expect the Federal Reserve to deliver a 25-basis-point rate cut, lowering the federal funds range to 3.75%–4.%. While the decision is priced in, Chair Jerome Powell’s guidance will determine whether the dollar strengthens further or gives up ground. Any resistance to signaling additional easing would favor the greenback, while dovish commentary could provide temporary relief for the euro.

The European Central Bank, by contrast, is expected to maintain its current stance for a third straight meeting. President Christine Lagarde’s emphasis on data-dependent flexibility suggests a reluctance to pre-commit to policy shifts, particularly as recent eurozone indicators show modest stabilization. The lack of dovish surprises keeps the policy divergence tilted in the dollar’s favor, reinforcing headwinds for the euro.

Geopolitics add to short-term uncertainty

The dollar’s tone also benefits from easing geopolitical tensions. President Trump’s remarks this week on reducing tariffs in exchange for Chinese commitments on fentanyl exports and agricultural purchases have boosted sentiment.

The expected Trump–Xi meeting in South Korea later this week could deliver further trade optimism, a development that has historically weighed on the euro as investors shift away from defensive currencies.

Outlook

Unless the euro breaks decisively above 1.17, the near-term bias remains tilted lower. Immediate support rests at 1.1628 and 1.16, with a deeper decline toward 1.1540 possible if momentum accelerates. Conversely, a dovish surprise from the Fed that sparks broad dollar selling could push the pair toward 1.177, where the 0.618 Fibonacci retracement sits.

As previously discussed, EUR/USD remains a market defined more by external forces than internal strength. With both the Fed and ECB meetings converging alongside shifting trade headlines, volatility is likely to rise. Traders will be watching whether the euro can withstand another round of dollar strength, or if the long-awaited policy clarity finally shifts the balance of power in its favor.

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