The EUR/USD bounced back from its earlier lows on Friday, after a week that turned out to be far less eventful than should have been when you consider the fact that we have had US CPI and nonfarm payrolls report, and several central bank rate decisions, including from the European Central Bank. Heading into the final weeks of the year the EUR/USD forecast remains slightly positive, owing to both a firm euro and a neutral-to-weak US dollar. The ECB is neutral, and no one is expecting them to cut rates further in early 2026 anyway, leaving the US dollar and the Fed to dictate direction for this pair. But don’t expect any fireworks until the turn of the year, when we will have fresh un-interrupted December data. From here, an eventual rise to $1.20 looks the more likely outcome than a drop to $1.15.
With US inflation falling, can EUR/USD kick on from here?
The EUR/USD failed to react in the way you’d expect when US CPI came in at 2.7%, which was sharply lower than expected, leaving the door open for earlier 2026 rate cuts from the Fed. One would have thought that it should keep the dollar undermined. But it hasn’t, so far. Whether the weakness in US inflation will have a longer-term impact on the dollar and limit the downside risks for the EUR/USD remains to be seen. Clearly, there was some scepticism about this particular inflation report given what the government shutdown meant for data collation. So, markets have decided not to overreact to this CPI report and await the December report, due in January. But it is nonetheless clear that the impact of tariffs on inflation has turned out to be a lot milder than many had expected. With the calendar effect and recent drop in oil prices, weaker wage and job growth all to take into account, inflation could remain subdued in 2026. All that means is simple: potentially more rate cuts in 2026. That in turn could keep the EUR/USD forecast bullish, and the downside limited.
What’s next for the US dollar?
Well, the economic calendar is going to be fairly light in the remaining days of this year, which could mean limited data-driven volatility for the US dollar and FX markets as a whole. Still, there are a few potentially market moving events to keep an eye on.
- US Preliminary GDP: This will be release on Tuesday, December 23 at 13:30 GMT, and is the second estimate of Q3 GDP, which came out at 3.8% in the advanced estimate. With CPI cooling more than expected, any signs of growth acceleration could provide goldilocks scenario for risk assets while weakness could hurt the dollar further.
- ADP Weekly Employment Change: This will be released alongside US GDP, making it a potentially volatile period in the markets. The weekly ADP release is fast becoming a focal employment indicator given its timely release, often a precursor to the monthly ADP and official NFP employment report. Further signs of labour market weakness could bring forward the timing of the Fed’s next potential rate cut in 2026.
- FOMC meeting minutes: The remainder of US data for 2025 will be released in the last three trading days of the year, starting Monday 29th with Pending Home Sales, followed by weekly ADP and FOMCE minutes on Tuesday 30th and the weekly jobless claims on Wednesday 31st. Among these, the FOMC minutes will be interesting to watch. The Fed cut interest rates as widely expected earlier in December, and investors were encouraged by Powell keeping the door open for more easing in 2026. Since then, slightly stronger employment data has been met with a weaker inflation report. The minutes should give us clearer insights into the FOMC’s forward guidance.
EUR/USD forecast: Technical analysis and key levels to watch
From a technical standpoint, the EUR/USD forecast remains firmly bullish, despite the recent loss of momentum. Rising moving averages, a short-term uptrend, and a clear pattern of higher highs and higher lows all point in the same direction, making it hard to argue for a bearish case at this stage.
That said, the pair has eased back from the 1.18 handle, my initial upside target, which has now been met. A pullback here is hardly surprising as traders lock in profits around former resistance, but it’s far too early to call a top in the euro.
I expect any downside to be limited, with key support in the 1.1650–1.1685 zone. This area is reinforced by the 21-day EMA, the rising trend line, and prior resistance. A bounce from here could see EUR/USD push back towards 1.1750, and a clean break above that level would put 1.18 back in focus.
Beyond 1.18, resistance is fairly thin until the September 2025 high near 1.1920, with the 1.20 handle the next obvious upside target.
On the downside, a decisive break below the 1.1650–1.1680 support zone would shift attention to 1.15, where the 200-day moving average and longer-term support converge.
Overall, I still favour the upside, and continue to see dips as buying opportunities, with resistance levels more likely to give way than hold.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
