EUR/USD gains as Fed outlook shifts and euro presses into major resistance

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Euro tests 1.16 zone

Highlights

- EUR/USD trades near 1.159 as softer U.S. data lifts December rate-cut expectations to 84 percent.

- The pair breaks above its descending channel and now tests a dense resistance cluster near 1.16.

- Momentum improves as price holds above key EMAs and dollar weakness deepens across markets.

The move has pushed EUR/USD back into the mid-range of its multi-month structure, placing the pair at one of its most important technical tests in weeks.

Technical structure turns constructive

The daily chart shows EUR/USD breaking out of the descending channel that capped upside momentum since late October. Price has reclaimed the 23.6 percent Fibonacci retracement at 1.148 and is now testing the 38.2 percent level near 1.156, a pivot that has repeatedly acted as a decision point during the past four months. A clean break above this zone would open the path toward the 0.5 retracement at 1.165 and the 61.8 percent marker near 1.166, levels where the pair has struggled to hold gains since summer.

EUR/USD price dynamics (Source: TradingView)

Short-term alignment is improving. EUR/USD now trades above the 20-day EMA at 1.157, while the 100-day EMA at 1.157 sits directly beneath price, confirming renewed bullish momentum. The 50-day EMA at 1.16 remains the next immediate barrier. Earlier in the month, the pair reclaimed the 200-day EMA near 1.142, preventing a deeper breakdown and reinforcing long-term structural support. Parabolic SAR signals have flipped beneath price, marking another shift in near-term control.

This technical improvement places the 1.156–1.16 band at the center of this week’s focus. If euro buyers force a sustained close above 1.16, the pair would enter its first meaningful bullish phase since July.

Dollar weakens as U.S. data softens

Dollar softness remains the primary catalyst for the current rebound. U.S. retail sales eased to 0.2 percent, the control-group component contracted 0.1 percent, and consumer confidence slipped sharply to 88.7 from 95.5. These figures point to cooling demand at the consumer level. Combined with softer core PPI at 2.6 percent, the latest inflation and spending data reinforce the view that pricing pressures are moderating.

Markets have responded decisively. Fed-funds futures now imply 84 percent odds of a December cut, up from 50 percent just a week earlier. Lower front-end yields have driven broad-based dollar pressure, supporting gains across most major currencies. The euro has been one of the primary beneficiaries, recovering from a multi-week low as the policy gap between the U.S. and eurozone expectations widens.

From the ECB side, policymakers have maintained a balanced tone. Bundesbank President Joachim Nagel acknowledged ongoing strength in services inflation but pointed to December projections as the key reference for assessing future policy. Markets expect no ECB cuts through 2026, a contrast that amplifies the impact of the aggressive shift in Fed expectations.

Outlook: Can EUR/USD break $1.16

EUR/USD now sits at a decisive resistance band. The 1.156–1.16 region blends major Fibonacci levels with the 50-day EMA, making it one of the densest technical clusters on the chart. A confirmed break above 1.16 opens the door toward 1.165, where rallies have repeatedly stalled since July. A clean close beyond that barrier would expose the broader 1.172 resistance tied to the 78.6 percent retracement.

On the downside, the 1.148–1.15 area is the first support. A failure to hold above the 20-day EMA would pull the pair back toward 1.142, the long-term trend support that prevented deeper losses in mid-November. Below that, early-summer lows and the former channel base come back into view.

For now, EUR/USD is transitioning from defensive consolidation into a more constructive structure, backed by one of the fastest shifts in Fed-cut expectations this year. Price remains inside a clear Fibonacci framework, but macro momentum is moving in the euro’s favor. A confirmed break above 1.16 would validate the shift and target 1.165–1.172, while rejection risks pulling the pair back into the familiar mid-1.14 region.

In earlier discussions, we highlighted that EUR/USD’s ability to reclaim the 200-day EMA at 1.142 would set the foundation for a broader recovery. That scenario has played out, with the pair now pressing into the 1.16 resistance cluster. The current setup reflects the same roadmap: euro strength depends on a decisive break above the Fibonacci and EMA band that has capped upside since summer.

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