In the last two trading sessions, the EUR/USD has moved just 0.4%, reflecting a neutral tone as the market prepares for tomorrow’s European Central Bank (ECB) decision. For now, the pair maintains a sideways bias, waiting for clearer signals about the direction of monetary policy. While rates are expected to remain unchanged, the key factor will be the ECB’s forward guidance and how it contrasts with the Federal Reserve’s outlook for rate cuts. This divergence could act as an important catalyst for the pair in the short term.
ECB Decision Day
The ECB’s next policy decision is scheduled for September 11, 2025, and the ECB Watch tool shows a strong expectation that interest rates will remain unchanged. The probability of keeping the current 2.00% deposit rate steady is 91.9%, and markets believe the key focus will not be the decision itself but the subsequent comments, which may offer clues on the outlook for future meetings. For the October 28 meeting, there is also a high probability, 91.1%, that rates will remain stable. What really matters is whether this neutral stance is confirmed through the bank’s messaging following tomorrow’s decision.
Source: ECB Watch
Source: ECB Watch
One of the main factors behind this approach is inflation dynamics. The ECB, one of the first central banks to cut rates earlier this year, now faces a different backdrop. In May, inflation stood at 1.9%, but August data showed an increase to 2.1%. Although still close to the 2.0% target, this early uptick raises concerns about a possible sustained rise. This reinforces the case for holding rates steady rather than pursuing additional cuts, at least until inflation clearly returns to a downward path. For this reason, the bank’s neutral stance could persist across several upcoming meetings.
Source: TradingEconomics
At the same time, the rate differential between Europe and the U.S. remains significant. Currently, the Federal Reserve’s policy rate stands at 4.5%, while in the eurozone the financing rate is around 2.15%. This gap continues to favor the dollar in the short term, as U.S. rates remain higher than those in Europe.
Source: TradingEconomics
However, unlike the Fed, which is expected to deliver additional rate cuts over the remainder of 2025, the ECB has so far kept a neutral outlook. If this divergence in policy persists, the rate differential is likely to narrow gradually, which could reduce the attractiveness of dollar-denominated assets and, in turn, boost demand for euro-denominated ones. In this scenario, the euro would have room to gain ground against the dollar, sustaining steady buying pressure on the EUR/USD.
EUR/USD Technical Outlook
Source: StoneX, Tradingview
- Short-term sideways range: The pair continues to trade within a well-defined channel, with resistance at 1.18194 and support at 1.16366. This range remains the most relevant technical structure in the short term, suggesting that as long as neither boundary is clearly broken, neutrality will prevail in EUR/USD movements.
- RSI: The indicator remains near the neutral 50 level, showing a constant balance between buying and selling pressure. While direction is lacking for now, a stronger move higher or lower could point to a more defined trend emerging.
- MACD: The MACD shows a similar setup, with its histogram hovering near the zero line, reflecting neutral momentum in short-term moving averages. This indicates that the market is in wait-and-see mode ahead of the ECB decision.
Key Levels:
- 1.18194 – Major Resistance: Matches this year’s highs and is the main barrier for buyers. A sustained break above would open the way to new highs and reinforce a short-term bullish trend.
- 1.16366 – Nearby Barrier: Aligned with the 50-period simple moving average. As long as the price remains above this level, the sideways range is likely to persist.
- 1.1450 – Key Support: Linked to the 23.6% Fibonacci retracement, it is the most critical level. A sustained drop toward this area would signal a structural shift to a bearish bias, paving the way for a clearer downtrend.
Written by Julian Pineda, CFA – Market Analyst
Follow him: @julianpineda25
