Will the EUR/USD pair soar to 1.23 and then fall to 1.16, or will it steadily rise to 1.25 and higher? At the same time, it may well plummet below 1.1. Market participants have differing views on this matter. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Markets are lowering the chances of a Fed rate cut in December.
- The dollar has stopped falling due to stock indices.
- Investors are preparing for crucial data.
- Lon positions on the EURUSD pair can be considered above 1.16.
Weekly US Dollar Fundamental Forecast
The road is conquered by the one who is walking. The futures market continues to reduce the chances of a federal funds rate cut in December, but still sees it falling to 3.25% in the current cycle of monetary expansion. Stock indices are falling, frightened by investors’ changing views on the fate of borrowing costs in 2025. Global risk appetite is deteriorating, but the EUR/USD pair has stopped rising. Carry traders have closed their positions, the US dollar has strengthened, and is ready to face the test of the FOMC meeting minutes and employment statistics.
Market Expectations on Fed Interest Rate Trajectory
Source: Nordea Markets.
While Nordea believes that the Fed’s rate will only fall to 3.75%, Morgan Stanley expects the US regulator to trim it by 75 basis points in 2026. The largest cut will likely come in the first half of the year, when pressure from the Trump administration on the central bank will intensify and Jerome Powell steps down as Fed Chair. As a result, the EUR/USD pair may surge to 1.23 in January-June only to slide to 1.16 by the end of 2026.
Nordea also expects the euro to strengthen, despite the limited scope for the Fed’s monetary expansion. The acceleration of the eurozone economy, driven by fiscal stimuli, will boost EURUSD quotes. Meanwhile, the US GDP will likely slow.
In fact, the ECB, IMF, and European Commission have raised their forecasts for the currency bloc’s economy for 2025 but lowered them for 2026. High tariffs and uncertainty, along with a strong euro, will dampen EU GDP growth. If so, the potential for a EURUSD rally looks limited.
European Commission’s Forecast For EU GDP
Source: Bloomberg.
If the eurozone economy picks up speed due to Germany’s fiscal stimulus measures and the Fed continues to cut interest rates in December, the euro could reach 1.25 in the first half of the year. However, there is another scenario in which economic weakness could force the ECB to resume its cycle of monetary expansion. Should the deposit rate fall from 2% to 1.5%, the EUR/USD pair will return below 1.1.
Meanwhile, investors are winding down carry trades, closing long positions in stock indices ahead of important events, and keeping their eyes wide open. The rift within the Fed has been known for a long time. Christopher Waller still insists on a rate cut in December, but hawks are forcing the futures market to lower the chances of such an outcome to 42%.
Traders hope to find hints in the minutes of the October FOMC meeting and statistics on September employment in the US non-farm sector. Bloomberg expects it to accelerate from 22,000 to 50,000.
Weekly EURUSD Trading Plan
The EUR/USD pair will unlikely jump the gun. Most likely, the pair will continue to fluctuate near 1.16. Currently, it is better to stay out of the market or buy the euro if the pair returns above 1.161.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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