EUR/USD Forecast: Euro Extends Losses Ahead of Fed Rate Decision

The euro has started to face a more challenging period in the short term. The EUR/USD pair has already declined by nearly 0.81% over the last four trading sessions, a move that has begun to reinforce a meaningful bearish bias in favor of the U.S. dollar.

For now, selling pressure remains in place as markets continue to strengthen expectations of a more aggressive Federal Reserve, a dynamic that has started to support demand for U.S. dollars. As long as the Fed's decision remains the primary focus and investors continue to anticipate higher interest rates, the euro may struggle to regain momentum in the near term.

The Fed Decision Day Is Approaching

The Federal Reserve will announce its monetary policy decision tomorrow, and market expectations have shifted significantly toward a more hawkish central bank. This perception remains supported by a combination of factors, including still-persistent inflation, a labor market that continues to show resilience, and an economy that appears capable of sustaining higher interest rates over the coming months.

For tomorrow's meeting, markets are already pricing in a greater than 92% probability of a 25-basis-point rate hike, which would lift the benchmark rate from the current 3.75% to around 4.00%. More interestingly, those expectations have also begun to extend to subsequent policy meetings.

Looking at probabilities for the October 28 decision, markets currently assign roughly a 41% probability that interest rates could rise further toward 4.25%. This suggests investors are no longer expecting just a one-off rate increase, but rather the beginning of a more aggressive tightening phase from the Federal Reserve, a dynamic not seen with this degree of intensity in recent months.

Source: CMEGROUP

This backdrop is also becoming evident in bond market performance. While yields on European 10-year government bonds continue to move higher and approach the 4.0% level, U.S. Treasury yields have climbed to levels not seen in quite some time and are now trading above the 5.0% mark.

In addition to representing a new high for 2026, this development highlights the increasing relative attractiveness of the U.S. bond market, which continues to benefit from expectations of a more restrictive Federal Reserve. As a result, the yield differential between U.S. and European bonds continues to favor the dollar in the foreign exchange market.

Source: TradingEconomics

This environment is particularly important for dollar price action because a combination of higher interest rates and stronger Treasury yields can increase the appeal of USD-denominated investments. If tomorrow's decision reinforces expectations that rates will remain elevated for longer, the dollar could continue to strengthen and further complicate any sustained recovery in the euro over the short term. Under this scenario, the selling pressure recently observed in EUR/USD may continue to gain traction in the sessions ahead.

 

EUR/USD Technical Forecast

Source: StoneX, Tradingview

• Bearish momentum is becoming increasingly relevant: Although EUR/USD price action had been attempting to hold a potential upward trendline in recent weeks, recent selling pressure has started to threaten that structure. As the pair continues to trade below key references, the possibility of a more dominant bearish bias on the daily chart is beginning to gain traction for the weeks ahead.
   

• RSI: The RSI continues to trade below the 50-neutrality level, reflecting growing relevance of the bearish momentum observed over the past 14 trading sessions. As long as this behavior persists, downside pressure could continue to strengthen across the chart.
   

• MACD: A similar dynamic can be seen in the MACD histogram, which remains below the 0-neutrality line. This reading suggests that the average strength of short-term moving averages currently favors a bearish dynamic that continues to gain relevance within recent EUR/USD price action.
   

Key Levels:

• 1.16342 – Key resistance: This level marks an important high on the daily chart and also coincides with the 200-period simple moving average. A move back toward this reference could begin to signal a loss of momentum in the current bearish move and open the door to a more sideways trading phase in the coming weeks.
   

• 1.15267 – Near-term barrier: An important retracement zone that aligns with previous areas of equilibrium and the 50-period simple moving average. This level could become a significant obstacle for recent bearish moves and provide room for short-term bullish corrections if price manages to stabilize around the area.
   

• 1.14596 – Critical support: This level coincides with an important retracement area observed several months ago and remains below the chart's main moving averages. A renewed move toward this reference could reaffirm the bearish dominance seen recently and potentially contribute to the development of a more solid bearish structure in the weeks ahead.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25