EUR/USD Forecast: Euro Vulnerable Ahead of Fed and ECB Decisions

EUR/USD Market Overview

The EUR/USD pair traded mildly higher toward the 1.1150 level during Wednesday's U.S. session as the U.S. dollar paused its recent advance ahead of the Federal Reserve policy decision. The U.S. Dollar Index (DXY) adjusted to 102.20, retracing slightly after reaching a two-week peak of 102.49 earlier in the session.

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Markets broadly expect the Federal Reserve to hold its benchmark policy rate within the 3.75% to 4.00% target range following a 25-basis-point increase in September. However, elevated inflation risks—fueled by geopolitical tensions in the Middle East and rebounding crude oil prices—keep expectations for further monetary tightening alive. According to the CME FedWatch tool, money markets reflect approximately an 85% probability of another rate hike in December.

Euro Area Fundamentals and ECB Outlook

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Fundamental headwinds continue to weigh on the single currency, keeping EUR/USD near yearly lows. Analysts at ING and Societe Generale highlight that unresolved fiscal concerns surrounding France's budget crisis, rising energy costs, and broader growth uncertainties continue to limit any sustained recovery for the euro.

Market attention will shift to the European Central Bank policy meeting on Thursday. The ECB is widely anticipated to keep its deposit rate unchanged at 2.50% following 50 basis points of total tightening earlier this year. Investors will closely monitor policy guidance for signals regarding the ECB's December stance and its assessment of persistent energy-driven inflation relative to downside economic growth risks.

Technical Analysis and Key Levels

From a technical perspective, EUR/USD remains under persistent downside pressure, trading below all major moving averages. Immediate overhead resistance is located around the 1.1150 level, followed by the 9-day exponential moving average near 1.1180. On the downside, critical technical support rests at the year-to-date low near 1.1113.

In cross-currency flows, the euro showed relative strength against the New Zealand dollar on Wednesday, though its broader tone remains limited against the U.S. dollar due to divergent central bank outlooks and domestic fiscal risks.

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