The euro fell for a third straight session despite a 53.1 eurozone PMI, the strongest since April 2023 | That's TradingNEWS
Key Points
- EUR/USD fell to 1.1380, its lowest since July 28, extending losses to seven of the past nine sessions.
- The ECB deposit rate at 2.50% trails the Fed's 3.75%-4.00% range by 125 to 150 basis points.
- A daily close below 1.1353 targets 1.1200, while a close above 1.1450 opens a path to 1.1610.
EUR/USD traded in the 1.1375 to 1.1385 band on Thursday, extending its slide for a third straight session and printing its lowest level since July 28 during the Asian session. The pair has now fallen in seven of the past nine sessions, and the euro has lost 2.53% against the dollar over the past month. On a 12-month basis, the single currency is down 2.42%.
The damage built across three days. On Tuesday, the euro closed down 0.15%. On Wednesday, it opened at 1.1446, touched a high of 1.1450 and then sank to 1.1425, its lowest since July 29, before the U.S. PMI release pushed it through the 1.1400 floor. The ECB's reference rate, fixed at 14:15 CET on Wednesday, came in at 1.1411, according to the ECB Data Portal. By Thursday morning in Europe, the pair had broken under 1.1390 and was grinding along the 1.1380 handle.
The driver is not a European problem. Eurozone data this week has been strong. The driver is the U.S. bond market. The 10-year Treasury yield pushed to 5.15% on Thursday, its highest since July 2007, and the 30-year touched 5.446%, a peak not seen since June 2004. The U.S. Dollar Index climbed to 100.80, its highest since July 30. When U.S. yields surge on hawkish Fed repricing, the dollar pulls capital from every major currency, and the euro, as the most liquid counterpart, takes the largest share of the flow.
The pair's short-term momentum has reached an extreme. The daily Relative Strength Index has dropped to 25.47, deep in oversold territory. That reading doesn't signal a reversal on its own, but it does argue that the pace of decline will slow and that a corrective bounce becomes more likely before the next leg lower.
This forecast rests on one thesis: EUR/USD is being driven by the transatlantic rate gap, and that gap is widening from the U.S. side faster than the ECB can close it. The ECB deposit rate sits at 2.50% against a Fed range of 3.75% to 4.00%, and markets now price more Fed tightening than ECB tightening. As long as U.S. yields keep climbing, strong European data can't hold the euro up. The 1.1353 July low decides whether the current slide pauses into a bounce toward 1.1450 or breaks down toward the 1.1200 area.
Everything in this analysis, from the eurozone's best PMI in more than three years to Friday's U.S. durable goods data, feeds into that single rate-differential equation.
The Rate Gap: ECB at 2.50%, Fed at 3.75% to 4.00%
The core of the EUR/USD story is the distance between two policy rates. The ECB's deposit rate stands at 2.50% after the September 10 hike, while the Fed's target range sits at 3.75% to 4.00% after its September 16 increase. That leaves a gap of 125 to 150 basis points in favor of the dollar at the front end.
Both central banks are tightening, which makes the gap's direction the key variable. The ECB has hiked twice in 2026: in June, lifting the deposit rate to 2.25% with effect from June 17, per the ECB's June decision, and again in September to 2.50%, after pausing in July. The Fed made its first move of the cycle on September 16, its first hike in more than three years, and 16 of 18 policymakers projected at least one more before year-end.
Market pricing now tilts toward the Fed doing more. Fed funds futures price a 75.3% probability of an October hike and a 58.6% chance of another in December. Some market pricing points to three further quarter-point Fed moves by mid-2027. On the European side, money markets price a 60% chance that the ECB lifts its deposit rate to 2.75% at the October 29 meeting.
Those probabilities translate directly into the pair's direction. If both central banks deliver the next move, the gap stays at 125 to 150 basis points. If the Fed hikes in October and the ECB waits until December, the gap widens to 150 to 175 basis points for six weeks. If the Fed hikes twice more and the ECB once, the gap widens permanently. Every scenario that has the Fed outpacing the ECB points EUR/USD lower.
The long end matters more than the front end this week. The U.S. 10-year yield jumped 15 basis points on Wednesday alone, from 4.96% to 5.11%, and extended to 5.15% on Thursday. That move widened the transatlantic 10-year spread in a single session by more than European bond markets could offset. Capital flows follow yield, and a U.S. government bond paying above 5% for ten years is a magnet for global savings, including European savings.
The gap also explains why the euro failed to benefit from the ECB's September hike. EUR/USD dipped below 1.1600 on the ECB announcement on September 10 and steadied near 1.1610, with the hike fully priced. Since then, the pair has lost more than 230 pips as the Fed's hawkish turn swamped the ECB's move.
Treasury Real Yields at 2.76% Pull Capital Across the Atlantic
The composition of the U.S. bond selloff explains the force behind the dollar's rally. According to Treasury's daily real yield curve, the 10-year real yield climbed from 2.63% to 2.76% on Wednesday. That accounts for 13 of the 15 basis points added to the nominal 10-year. Implied inflation compensation moved 2 basis points, from 2.33% to 2.35%.
That split matters for currencies. When nominal yields rise because of inflation fears, the currency can weaken, since inflation erodes purchasing power. When nominal yields rise because real yields are climbing, the currency strengthens, because investors earn a higher inflation-adjusted return for holding it. This week's move is the second type, and it is the most dollar-positive combination possible.
The trigger was U.S. growth. The S&P Global composite PMI for September jumped to 58.4 from 56.0, with services at 58.7 and manufacturing at 57.0, the strongest expansion in the survey since July 2021. Job creation in the survey ran at its fastest pace since June 2022. On Thursday, weekly jobless claims fell to 197,000 against a 201,000 forecast, and new home sales jumped 6.4% to a 684,000 annual rate. Each print added to the case that the U.S. economy can carry higher real rates.
The weak Treasury auction added to the pressure. A soft sale of five-year notes on Wednesday pushed yields higher across the curve, and the U.S. 5-year and 10-year yields both cleared 5%. Yield spreads between the U.S. and the rest of the world have widened continuously since the Fed's hawkish hike, and the move accelerated this week.
For EUR/USD, the real-yield dashboard is the most useful tool. A 10-year real yield retreating below 2.65% would ease the pull on capital and give the euro room to recover toward 1.1450. A real yield extending toward 2.85% to 2.90% would signal a longer stretch of restrictive U.S. policy, and in that scenario the July low at 1.1353 is unlikely to hold.
The mechanism reaches beyond pure yield. European pension funds, insurers and asset managers hold large U.S. bond portfolios. When U.S. real yields rise, those institutions face a choice between adding to dollar exposure for the extra return or hedging the currency risk. Hedging costs rise as the rate gap widens, so more of the flow goes unhedged, which means buying dollars. That structural demand is part of why the euro keeps sliding even on strong European data days.
Eurozone PMI at 53.1 Fails to Lift the Euro
The most telling detail of the week is what didn't happen. On Wednesday, the eurozone's flash composite PMI came in at 53.1 against a 51.5 forecast, up from 52.0 in August. Services printed at 53.0 against a 51.7 consensus. The composite reading was the strongest since April 2023, marking the fastest private-sector expansion in almost three and a half years. The euro still fell to its lowest level since late July on the day the data came out.
That disconnect has a clear explanation. A strong European number lifts the euro only if it changes what the ECB does next. The ECB has already hiked twice this year, and markets were already pricing a third move by December. Strong European growth reinforced that expectation but didn't add much to it. The U.S. PMI, released hours later, showed an even stronger reading at 58.4 and moved Fed pricing more than the European data moved ECB pricing. Relative growth, not absolute growth, drives the pair, and the U.S. advantage widened.
The European economy is holding up better than expected under the energy shock. GDP growth accelerated to 0.6% in the second quarter of 2026, and the ECB upgraded its growth forecasts to 0.9% for 2026 and 1.4% for 2027 at the September meeting. That resilience gives the ECB room to keep tightening without an immediate recession risk.
Inflation is the other half of the European picture. Eurozone consumer prices rose 3.3% in August, a three-year high and well above the 2% target. The ECB's September projections see headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, with the 2027 and 2028 figures revised higher from 2.3% and 2.0%. The energy shock has lengthened the path back to target.
That combination should support the euro over a longer horizon. A central bank facing 3.3% inflation and a growing economy has every reason to keep hiking. The ECB has a stronger case for tightening than it had at any point since 2022. But the currency market is focused on relative pace, and right now, the Fed is moving faster.
The PMI reaction sets a pattern for the coming weeks. European data surprises will likely produce only brief euro bounces while U.S. data keeps surprising to the upside. For the euro to turn, it needs either softer U.S. data or a clear signal that the ECB will accelerate its hiking pace. Neither appeared this week.
The ECB Keeps the Door Open to More Hikes
ECB officials are signaling that the tightening cycle isn't over, but the tone is cautious rather than aggressive. At the September 10 meeting, President Christine Lagarde described the decision as unanimous and straightforward, while stressing that policy will be set meeting by meeting and that the Governing Council is not pre-committing to a rate path. She said risks to growth are tilted to the downside while inflation risks tilt to the upside.
Bundesbank President Joachim Nagel said on Tuesday that oil prices are becoming an increasingly important factor in monetary policy decisions and left the door open to further hikes. He cited still-high core inflation but said he saw no significant second-round effects so far. That caveat matters: second-round effects, where energy costs feed into wages and broader prices, are the trigger that would push the ECB into faster tightening.
Chief Economist Philip Lane warned that another surge in energy prices could keep eurozone inflation elevated for longer than expected. Central Bank of Ireland Governor Gabriel Makhlouf said the ECB will have to act again if second-round inflation effects appear. Both officials framed further hikes as conditional on how the energy shock evolves.
That conditional tone limits the euro's support. The ECB statement said the Middle East conflict continues to generate price pressures and that inflation is expected to remain well above target for an extended period. But few signs of second-round effects have appeared, and some economists warn that additional hikes could tip the economy into recession. Rising oil and gas prices will reduce domestic demand over time, and aggressive tightening could amplify that drag.
Market pricing reflects the ambiguity. Money markets imply a 60% probability that the ECB lifts the deposit rate to 2.75% on October 29. Interest-rate futures price a third hike by December. Markets now price more tightening than the ECB's own baseline requires, which leaves the euro exposed: if the ECB delivers less than priced, the currency loses its rate support.
The asymmetry with the Fed is the problem for euro bulls. U.S. officials are pushing back against nothing; they are leaning into market pricing. New York Fed President John Williams said Thursday that another hike before year-end is a reasonable expectation. ECB officials are hedging every signal with conditions tied to energy and second-round effects. When one central bank sounds more certain than the other, currency traders follow the more certain one. The next scheduled test is the ECB's October 29 decision, but the flash eurozone inflation print for September, due in early October, will shape pricing well before then.
Fed Pricing: 75.3% October Odds and a Hawkish Chorus
The U.S. side of the equation is tilting harder toward tightening. Fed funds futures price a 75.3% chance of an October hike and a 58.6% chance of a further move in December. A week ago, markets were still debating whether the September hike would be the only one. Now they are pricing a full cycle.
New York Fed President John Williams said Thursday that another rate increase before year-end is a reasonable expectation. He said downside risks to employment have faded and that demand tied to artificial intelligence is running strong. He also declared the era of explicit forward guidance over, echoing Fed Chair Kevin Warsh's stance that the central bank will stop signaling moves ahead of meetings.
The policy backdrop sets a high bar for any dovish turn. At the September meeting, 16 of 18 policymakers projected at least one more hike before year-end, and four saw room for two. The median projection put the end-2026 rate at 4.1%. Officials don't expect inflation to return to the 2% target until 2029. The committee held rates in July on a split 9–3 vote before moving in September, which shows how quickly the consensus shifted.
Fed communication overall is running hot. Sentiment trackers that score Fed speeches sit firmly in hawkish territory, and the broader communication backdrop remains skewed toward further tightening. For the dollar, that is the most supportive configuration possible: strong data, rising yields and officials who aren't pushing back against market pricing.
The end of forward guidance adds volatility. Without the Fed telegraphing its moves, every data release carries more weight, and EUR/USD now trades each U.S. print as a referendum on the Fed path. Friday's durable goods and consumer sentiment data, followed by the late-September core PCE release, are the next tests.
A cool PCE print would pull October hike odds lower and give the euro room to bounce toward 1.1450. A hot print pushes those odds toward certainty and sets up a test of 1.1325. With Fed expectations this hawkish, any dovish comment from a Fed official could trigger a sharp dollar pullback, since positioning has shifted heavily toward dollar strength. That asymmetric risk is one reason the euro's decline may pause near current levels before resuming.
Brent Above $105 Hits the Euro Through Terms of Trade
The energy shock works against the euro through a channel the dollar doesn't share. Brent crude climbed past $105 a barrel on Thursday, reversing a six-session slide that had taken it under $100 earlier in the week. West Texas Intermediate rose 1.04% to $93.12. The eurozone imports the bulk of its energy, and every dollar added to the oil price widens its import bill.
The terms-of-trade effect is direct. When oil rises, Europe pays more dollars for the same volume of energy, which means selling euros to buy those dollars. That flow adds structural pressure on EUR/USD every time crude spikes. The U.S., as a net energy exporter, sees the opposite effect: higher oil prices improve its trade balance and support the dollar.
The geopolitical backdrop is deteriorating. The U.S.-Iran conflict is in its seventh month, and the war closed the Strait of Hormuz earlier this year. On Wednesday, the bulk carrier Cape Dao was struck in the strait, killing one crew member and forcing the evacuation of 27 others. A senior adviser to Iran's supreme leader warned Thursday that Iranian forces and Houthi allies could open a new front against Red Sea energy flows if the U.S. launches fresh attacks.
Diplomacy is stalling. Iranian President Masoud Pezeshkian told the United Nations General Assembly that Tehran would never surrender, a day after President Trump threatened to annihilate Iran from the same podium. U.S. and Iranian officials met for three hours on the assembly sidelines, but hopes for a breakthrough faded overnight.
Oil's intraday volatility shows how fragile supply remains. On Wednesday, WTI fell 0.97% to $89.64 early on de-escalation hopes, then reversed to $91.92 by mid-morning after an armed group shut a pipeline valve at Libya's El Sharara field. That $2.28 swing in a few hours is the kind of move that keeps the euro under pressure.
The energy link also complicates ECB policy. Higher oil pushes eurozone inflation up, which argues for more hikes. But higher oil also drains household spending power and slows growth, which argues for caution. The ECB can't fully offset the energy shock without risking recession. The Fed, facing the same oil price with a stronger domestic economy, has more room to tighten. That asymmetry is another reason energy spikes push EUR/USD lower. A durable ceasefire that sends Brent back toward $95 would be one of the few catalysts capable of reversing the euro's slide.
Dollar Index at 100.80 and the Cross-Currency Picture
The euro's weakness is part of a broad dollar rally, not a euro-specific selloff. The U.S. Dollar Index climbed to 100.80 on Wednesday, its highest level since July 30, and edged toward 100.7 in Asian trading on Thursday after three consecutive sessions of gains. The euro accounts for more than half of the index's weight, so the two move almost as mirror images.
The rally is broad across the majors. Sterling faces the same pressure after its own PMI undershoot, with the UK losing ground to the dollar alongside the euro. The EUR/GBP cross sits at 0.8595 based on Wednesday's ECB reference rates, showing the euro holding its ground against the pound even as both slide against the dollar. The Australian dollar dropped more than 1% on Wednesday as U.S. 5-year and 10-year yields cleared 5%.
The yen offers a partial exception. USD/JPY traded near 158.00 after touching three-week highs, then pulled back as surging Japanese government bond yields lifted the yen and kept intervention risk in play. That dynamic shows the dollar's strength has limits where local yields rise fast enough to compete.
The euro's broader trade-weighted value tells a steadier story. The ECB's nominal effective exchange rate, which measures the euro against the currencies of its main trading partners, stood at 128.7 on September 23. The real effective exchange rate, adjusted for inflation differences, was 96.9 in August. Those readings show that the euro's weakness is concentrated against the dollar rather than spread across all partners.
That distinction matters for the forecast. A currency falling against everything signals domestic stress: political risk, capital flight or a broken growth story. A currency falling mainly against the dollar signals an external shock driven by U.S. rates. The euro's current decline fits the second pattern, which means a turn in U.S. yields would reverse it faster than any European catalyst.
The Chinese yuan and the Trump–Xi summit add a wild card. The two sides extended their trade truce to January 10, and a constructive outcome could ease global risk aversion and trim safe-haven demand for the dollar. Expectations are low, but a surprise agreement on chips or rare earths could produce a brief dollar pullback. For EUR/USD, the Dollar Index level to watch is 100.30, where it traded before Wednesday's PMI release. A drop back under that line would give the euro room to recover toward 1.1450.
German Political Risk Adds a Euro-Specific Discount
Not all of the euro's weakness comes from the dollar side. Political instability in Germany is adding a euro-specific risk premium, and it reinforces the view that the path of least resistance for the pair remains lower. Germany is the eurozone's largest economy and its fiscal anchor, and uncertainty in Berlin weighs on confidence in the bloc's policy direction.
The political risk matters most through fiscal policy. Germany's spending plans, from defense to infrastructure, underpin the eurozone growth outlook that the ECB used to justify its forecast upgrades. Any disruption to those plans, whether through coalition friction or delayed budgets, would undercut the growth story that currently supports ECB tightening. Markets are pricing a modest discount on the euro to account for that risk.
The discount compounds the rate-gap problem. EUR/USD would be weaker on rate differentials alone. Adding political uncertainty removes some of the buyers who might otherwise step in on dips, particularly long-term investors who look beyond short-term rate moves. That is part of why the euro has fallen in seven of the past nine sessions without a meaningful bounce.
The European fundamental picture still carries strengths that political noise can't erase. The eurozone composite PMI at 53.1 marks the strongest private-sector growth since April 2023. Second-quarter GDP growth of 0.6% shows the economy absorbing the energy shock better than expected. Inflation at 3.3% gives the ECB a clear mandate to keep tightening. Those factors should support the euro once the U.S. rate shock stabilizes.
The balance between these forces sets the medium-term outlook. If German political risk fades and U.S. yields stabilize, the euro's fundamentals argue for a recovery back toward the 1.1600 area where it traded after the ECB's September hike. If political uncertainty deepens while U.S. yields keep climbing, the euro faces a double drag and a break below the June 24 low at 1.1325 becomes more likely.
For traders, the practical impact is on volatility. Political headlines can produce sharp intraday moves in the euro that don't reflect rate fundamentals. Those moves tend to fade when the headlines pass, but they add risk to leveraged positions in both directions. Keeping position sizes smaller around political news events and focusing on daily closes rather than intraday swings is the disciplined way to handle the extra noise.
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Technical Structure: RSI at 25.47 and a Market Below All Its Averages
The chart confirms the bearish trend and flags the risk of a near-term bounce. EUR/USD has fallen in seven of the past nine sessions and has now slid for three straight days. The pair trades beneath all key moving averages and volatility bands on the daily chart, keeping the near-term bias firmly bearish.
The moving-average picture is decisive. Price holds under the 100-day moving average and the Bollinger Band middle line, and the entire Bollinger envelope now sits above spot. That configuration, where price trades outside the lower band, signals persistent downside pressure. It also marks a stretched condition that often precedes a reversion back inside the bands.
Momentum readings back the oversold call. The daily RSI has dropped to 25.47, well below the 30 threshold that marks oversold territory. That doesn't guarantee a reversal: in strong trends, RSI can stay oversold for days. But it does argue that the pace of decline will slow and that sellers will become more cautious about pressing fresh shorts at current levels.
Short-term candle patterns support a corrective bounce. On the four-hour chart, EUR/USD formed an inverted hammer reversal pattern near the lower Bollinger Band. That pattern, where price probes lower and closes near its opening level with a long upper wick, often signals seller exhaustion. If it plays out, the correction target sits at the 1.1415 resistance.
The broader trend structure is a series of lower highs and lower lows. The pair traded at 1.1610 after the ECB hike on September 10, slid to 1.1450 by Wednesday morning and broke under 1.1400 on the U.S. PMI release. Each rally over the past two weeks has stalled at a lower peak. That is a clean downtrend, and trend-followers will treat any bounce as an opportunity to sell rather than a signal to buy.
The technical setup gives traders a two-stage framework. The first stage is a corrective bounce from oversold levels toward 1.1415 to 1.1450, driven by stretched momentum and short covering. The second stage, if U.S. yields stay elevated, is a resumption of the downtrend from that lower high toward the July and June lows. A daily close above 1.1450 would break the lower-high pattern and neutralize the bearish structure. A daily close below 1.1353 would confirm the trend's next leg.
Support Map: 1.1353, 1.1325 and the 1.1200 Target
The downside map is layered, with each level tied to a specific price event. The first support sits at the 1.1375 to 1.1380 area where the pair has traded through Thursday's Asian and European sessions. That zone marks the fresh low since July 28 and has held for several hours, as bears turned cautious ahead of the Trump–Xi summit.
The first major support is 1.1353, the July 28 low. That level marks the last significant trough before the summer rally that took the pair to the 1.1600 area. A daily close below 1.1353 would erase the entire late-summer advance and confirm that the September decline is a trend reversal rather than a pullback.
The second layer is 1.1325, the June 24 low. That level sits at the bottom of the range the euro has occupied since early summer. It also lines up with the period just after the ECB's June hike, when the deposit rate rose to 2.25%. A break there would push the euro to its lowest level since before the ECB began tightening in 2026.
The 1.1300 round number sits just below that. Round numbers attract large option strikes and resting orders, and they often act as short-term magnets or barriers. A move into the low 1.1300s would test whether real-money buyers, such as European corporates hedging dollar receivables, step in at levels that look cheap on a multi-month view.
The extended bear target is 1.1200. That level would represent a 3.5% decline from the 1.1610 post-ECB level and a 1.6% drop from current price. Reaching it would require a sustained U.S. real-yield rise toward 2.90%, two further Fed hikes priced by December and a stall in ECB tightening. It is the bear-case destination, not the base case.
Two forces argue against a straight-line break. First, the RSI at 25.47 signals that the decline is stretched, and oversold markets rarely fall in a straight line. Second, European fundamentals remain supportive, with the PMI at a three-year high and inflation giving the ECB room to keep hiking. Those factors create natural buyers on sharp dips.
The stop-loss dynamic matters here too. Many short positions entered during the past week will have protective orders above 1.1415 and 1.1450. If a bounce reaches those levels, short covering could accelerate the move. On the downside, long positions opened near 1.1400 likely have stops under 1.1353, and a break there could trigger a quick move toward 1.1325.
Resistance Map: 1.1400, 1.1415, 1.1450 and the 1.1610 Ceiling
The upside map starts close to current price. The first resistance sits at 1.1400, the round number that held as support through Wednesday's European session before breaking on the U.S. PMI release. Broken support tends to become resistance, and 1.1400 will likely attract sellers on the first test.
The second layer is 1.1411 to 1.1415. The ECB's Wednesday reference rate fixed at 1.1411, and the 1.1415 level marks the correction target from the four-hour inverted hammer pattern. That zone is where a technical bounce from oversold levels would most likely run into supply. A clean break above 1.1415 would signal that the correction has room to extend.
The third layer is the 1.1446 to 1.1450 zone. That was Wednesday's opening level and intraday high before the slide began. Clearing 1.1450 on a daily closing basis would break the pattern of lower highs and neutralize the short-term bearish structure. It would also put the pair back above the level it held before the U.S. PMI shock.
Above 1.1450, the path runs through 1.1500 toward the 1.1600 to 1.1610 zone. That area marks where EUR/USD traded immediately after the ECB's September 10 hike, before the Fed's hawkish turn. A return there would require U.S. yields to retrace most of this week's surge, with the 10-year falling back toward 4.90% and Fed October hike odds dropping below 50%.
The resistance map shows why the short-term bias remains bearish despite oversold conditions. Every level from 1.1400 to 1.1450 represents a point where sellers controlled the tape in the past 48 hours. The macro backdrop has deteriorated since each of those levels broke, with the 10-year yield climbing from 5.11% to 5.15%. Sellers have the bond market on their side.
For bulls, the first objective is modest: a daily close back above 1.1400 would stop the three-day losing streak. The second is 1.1450, which would flip the short-term trend. Until then, rallies into resistance are selling opportunities for tactical traders following the dominant trend. The oversold RSI argues for letting a bounce develop before selling, rather than pressing shorts at 1.1380 directly on top of the July low support.
Calendar: Durable Goods, PCE, Eurozone CPI and the October 29 ECB
The next five weeks carry a dense set of catalysts that will decide the pair's direction. Friday brings U.S. durable goods orders and the University of Michigan consumer sentiment survey. A strong durable goods print would add to the growth surprise from the PMI, push the 10-year higher and send EUR/USD toward 1.1353. A soft print, or a sentiment reading showing strain from 7.12% mortgage rates and $100 oil, would give bonds room to rally and lift the euro toward 1.1415.
The late-September core PCE release is the week's heavyweight. PCE is the Fed's preferred inflation gauge, and it will shape October hike odds more than any other single print. A cool reading would pull those odds from 75.3% toward 50%, removing a large part of the dollar's rate premium. A hot reading would push the odds toward certainty.
On the European side, the flash eurozone inflation estimate for September lands in early October. August inflation hit 3.3%, a three-year high. A reading at or above that level would firm ECB October hike pricing above 60% and give the euro support. A drop toward 3.0% would weaken the case for an October move and remove a pillar of euro support.
The ECB meets on October 29 with a 60% probability of a hike priced. The Fed's October meeting follows the same week. That sequence sets up a head-to-head test of the rate-differential thesis. If both central banks hike, the gap holds steady and the euro likely stabilizes. If only the Fed moves, the gap widens and the pair breaks lower.
The Trump–Xi summit in Washington on Thursday is the near-term wild card. The two sides extended their trade truce to January 10, and a constructive outcome on chips or critical minerals would ease global risk aversion. Expectations are low, but a surprise could trigger a brief dollar pullback and lift EUR/USD toward 1.1400.
Geopolitics remains the unscheduled catalyst. Any escalation around the Strait of Hormuz or the Red Sea pushes oil higher, which hurts the euro through terms of trade and pushes the Fed toward more tightening. A durable ceasefire would do the opposite. For traders, the calendar argues for patience into Friday's data and the PCE release, with positions sized for volatility around each event.
EUR/USD Price Forecast: 1.1450 Bounce, 1.1200 Risk, 1.1353 the Trigger
The forecast comes down to one level and one variable. The level is 1.1353, the July 28 low that marks the floor of the late-summer range. The variable is the U.S. 10-year real yield, which jumped from 2.63% to 2.76% in a single session and pushed the nominal 10-year to 5.15%.
The bull case needs three things. The U.S. 10-year real yield retraces below 2.65%. The Dollar Index slips back under 100.30. Friday's data and the late-September PCE print come in soft enough to pull Fed October hike odds toward 50%. Under that path, EUR/USD bounces from oversold levels through 1.1400 and 1.1415, clears the 1.1450 lower high and targets the 1.1600 to 1.1610 zone where it traded after the ECB's September hike, 2.0% above current price. Assigned odds: 25%.
The base case is a corrective bounce inside a downtrend. The RSI at 25.47 triggers short covering, lifting the pair to the 1.1415 to 1.1450 resistance band, where sellers return as U.S. yields hold above 5%. EUR/USD then drifts back toward 1.1353 into the October central bank meetings. Month-end target in this path: 1.1380 to 1.1420. Assigned odds: 50%.
The bear case needs U.S. real yields to extend toward 2.85% to 2.90%, the Dollar Index to push through 101, and ECB October hike odds to slip below 50% on softer eurozone inflation. EUR/USD loses 1.1353 on a daily close, triggers stops toward the 1.1325 June low and slides through 1.1300 to the 1.1200 extended target, 1.6% below current price. Assigned odds: 25%.
The signals to track are specific. Daily closes relative to 1.1353 and 1.1450. The U.S. 10-year real yield relative to 2.65% and 2.85%. The Dollar Index relative to 100.30 and 101. Fed October hike odds relative to 75.3%. ECB October hike odds relative to 60%. The late-September PCE print and the early-October eurozone flash CPI.
Verdict: Sell rallies, with a bearish bias below 1.1450 and a neutral stance on oversold levels near 1.1353. The transatlantic rate gap is widening from the U.S. side, the dollar sits at a two-month high and Brent above $105 hits the euro through terms of trade. Strong European data hasn't been enough to offset any of it. But an RSI of 25.47 argues against chasing the move at 1.1380. The better entry for shorts sits in the 1.1415 to 1.1450 zone on a corrective bounce. A daily close below 1.1353 extends the target to 1.1325 and then 1.1200. A daily close above 1.1450 neutralizes the call and opens 1.1610. Until one of those triggers fires, EUR/USD is a sell-the-rally trade with the U.S. bond market holding the key.