EUR/USD Analysis: The euro attempts to recover the 1.16000 level

Over the past five trading sessions, the EUR/USD pair has begun to show a steady upward movement, reflected in a recovery of more than 0.7%. For now, the buying pressure supporting the euro comes partly from the recent weakness in the U.S. dollar, along with a neutral stance from the European Central Bank (ECB)—factors that have allowed the European currency to regain ground consistently. As long as these elements remain relevant catalysts, buying pressure may continue dominating short-term movements in EUR/USD.

The European Central Bank takes the lead

With the final month of the year approaching, markets are focused on the policy decisions that will shape the outlook for both the euro and the dollar in December. On one hand, the ECB maintains a clearer perspective regarding its year-end strategy, in contrast to the Federal Reserve, whose economic data releases were disrupted weeks ago by the U.S. government shutdown, causing delays and gaps in key indicators.

At the moment, the ECB has not signaled any meaningful changes for December and continues leaning toward maintaining interest rates stable at 2.00% in its deposit facility. This outlook is supported by the ECBWATCH probability model, which assigns a 96.7% chance of no rate changes at the upcoming December 16 meeting.

Source: ECBWATCH

In contrast, the Federal Reserve’s direction remains unclear. The central bank has faced weeks of shifting expectations and indecision, complicating market interpretation ahead of the December 11 meeting. Currently, market consensus points to a 0.25% rate cut from the existing 4.00% benchmark. What is noteworthy is that demand for fixed-income assets in the U.S. had increased in recent weeks since Treasury yields remain higher than those in the eurozone. This has made dollar-denominated investments more attractive, but if a rate cut reduces this differential, the dollar could lose appeal, encouraging a shift toward euro-denominated investments—seen as stable and with no major changes expected in the short term.

Additionally, the more flexible monetary policy anticipated from the Federal Reserve has begun to reduce structural demand for the U.S. dollar. Lower rates diminish the appeal of fixed-income assets and, consequently, the demand for dollars needed to purchase them. This is reflected in the recent behavior of the DXY index, which measures the dollar’s strength and which has now fallen below the 100-point mark, indicating a dominant weakening in dollar performance.

Source: TradingEconomics

Overall, it can be said that the European Central Bank has begun to take the lead. Its stable and neutral stance has provided greater confidence in euro-denominated investments, while the Federal Reserve remains in a state of uncertainty that points toward lower rates—making it more difficult for the dollar to maintain its attractiveness. If this dynamic persists, the euro may continue gaining ground, supporting consistent buying pressure on EUR/USD in the coming sessions.

EUR/USD Technical Outlook

Source: StoneX, Tradingview

• Downtrend may be at risk: Since mid-September, bearish movements have maintained a descending trendline, pushing EUR/USD to levels last seen in April. However, the recent return of buying strength is now testing this trendline, and if bullish pressure continues, the short-term bearish structure may be at risk. This could open the door to a relevant bullish bias, potentially ending the downtrend in place since September. Therefore, price action in the coming sessions will be crucial in determining whether the trendline fails, giving way to a lateral formation or even a more stable bullish structure.
   
• RSI: The RSI indicator continues to oscillate around the 50 level, suggesting that neutrality remains dominant in the balance between buying and selling impulses. If this pattern persists, it may lead to a period of short-term indecision.
   
• MACD: The MACD shows a similar scenario. Its histogram remains near the zero line, indicating a lack of dominant momentum in the short-term moving averages. This continued neutrality could also result in a steady indecision phase in price movement.

Key Levels:

• 1.16263 – Relevant resistance: This level corresponds to the barrier formed by the 50-period simple moving average. A bullish breakout above it could end the current downtrend and trigger a dominant bullish bias in the coming sessions.
   
• 1.15602 – Current barrier: A nearby support level aligned with a pullback zone observed since June. As long as the price remains around this level, the market may enter a lateral consolidation, offering a pause within the downtrend and potentially forming a stable sideways range.
   
• 1.14779 – Final support: This level represents the recent lows of the bearish trend. If selling pressure pushes price back to this area and breaks it, a more aggressive bearish bias could reactivate, restoring downward dominance in the short term.

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him at: @julianpineda25