- EUR/USD forecast: Medium-term bias remains modestly bullish despite near-term dollar strength
- Germany’s spending plans and ECB stability are long-term positives for the euro
- Seasonal dollar weakness could support a late-year rebound in EUR/USD
Thanks to the ongoing US government shutdown, private sector data releases this week should provide some volatility for the US dollar pairs, including the EUR/USD. During October, the popular FX pair fell by 1.67%, but the month’s range was a minuscule 257 pips. The small drop meant that the EUR/USD’s prior bullish momentum ended. But does that mean we have seen the start of a bear market now? I am not so sure. I think the medium term EUR/USD forecast still points higher as we will discuss in this analysis article. In the short-term, though I wouldn’t rule out the potential for a temporary break of the $1.15 handle amid the ongoing US dollar recovery. But the outlook is positive and soon we could see the EUR/USD start climbing higher again.
US dollar holds firm for now
The US dollar enjoyed another decent week, buoyed by a hawkish tone from Federal Reserve Chair Jerome Powell. His comments suggested the Fed is not yet ready to commit to a December rate cut, giving the greenback some more breathing room. The easing of US-China trade tensions has also removed one of the key uncertainties that had previously weighed on the greenback. But with the US government still shut down, crucial employment data remain unavailable, limiting the Fed’s visibility ahead of its next meeting. Still, with no major negative surprises on the US front, traders have found little incentive to short the dollar. The question now is how long this resilience can last before the absence of fresh data begins to erode confidence.
EUR/USD forecast: ECB comfort contrasts with market caution
Despite encouraging Eurozone GDP figures and a notably upbeat Christine Lagarde declaring that the ECB is “in a good place,” the euro still struggled against the dollar last week. Lagarde’s comments implied the ECB is largely done with rate cuts for now, barring any sudden downturn in data -- a stance that should offer some degree of support to the single currency.
However, the euro’s short-term performance remains constrained by softer economic indicators and persistent investor caution.
This week’s European calendar isn’t heavy, while Lagarde’s upcoming remarks on Tuesday are unlikely to deviate much from her recent tone. German factory orders, retail sales, and industrial output will round out a week that’s unlikely to deliver major surprises for the euro.
Across the Atlantic, the spotlight shifts to private-sector reports such as the ISM manufacturing and services PMIs and the ADP payrolls -- key indicators now that official government data remain delayed. The ADP figure, in particular, could have an outsized impact given the Fed’s renewed focus on the employment side of its dual mandate.
Structural supports for the EUR/USD forecast
While near-term sentiment is tilted towards the dollar, several medium- to long-term factors could lend support to the euro. Chief among them is Germany’s significant fiscal expansion plan -- a near-trillion-euro spending package aimed at defence, infrastructure, and green initiatives. The plan effectively breaks Berlin’s self-imposed debt brake, marking a major policy shift after years of fiscal restraint.
Although most of this spending won’t flow through the economy until 2026, the move has already improved market sentiment around European assets. Germany’s deficit is expected to jump from €41 billion to €143 billion this year – a meaningful signal of fiscal intent. Over time, this could strengthen the euro as higher investment and growth prospects begin to materialise across the Eurozone.
Seasonal tailwinds and the road ahead
History also offers a potential boost for the euro as we head towards the latter stages of 2025. December has typically been a weak month for the US dollar: the DXY index has averaged a decline of around 0.56% during this period since 2010. If that seasonal pattern holds, it could pave the way for at least a modest EUR/USD recovery in the weeks ahead.
A prolonged US government shutdown could easily reignite demand for the euro, while the ECB’s stability, improving fiscal dynamics in Europe, and the potential for seasonal dollar weakness all point higher or at least to limited further weakness for EUR/USD forecast.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
