By Rania Gule, Senior Market Analyst at XS.com – MENA
The EUR/USD pair is passing through a highly sensitive phase, where multiple economic and political factors intersect, painting a blurred picture of the euro’s outlook against the U.S. dollar. While the euro struggles to hold above critical support levels near 1.1550–1.1600, signs of weakness continue to emerge from the European economy — particularly with accelerating inflation in Germany and declining risk appetite amid a turbulent global environment. Meanwhile, U.S. markets remain in a state of cautious anticipation, awaiting new guidance from the Federal Reserve regarding the next phase of monetary policy. Collectively, these factors add layers of complexity to the pair’s movement, raising the question: Will the euro continue its decline, or is a limited corrective rebound on the horizon?
In my view, what further complicates the picture is the prevailing risk-off sentiment that has dominated markets since renewed trade tensions between the United States and China resurfaced. Investor appetite for high-yield assets has faded, with capital flows shifting toward safe havens such as the U.S. dollar and Japanese yen. This defensive behavior naturally undermines the euro, especially given its role as a “funding currency” during periods of economic stress and global uncertainty. Despite some modest recovery attempts in recent Asian and European sessions, upward momentum remains weak — highlighting fragile confidence in the euro’s ability to stage a sustainable rebound in the short term.
German inflation data has added to the uncertainty rather than offering any solid support for the common currency. The final reading of the CPI showed an increase to 2.4% in September from 2.2% in August, a historically high level that doesn’t necessarily translate into monetary optimism. Inflation in this case is largely cost-driven, fueled by rising energy and commodity prices, rather than stronger domestic demand. As a result, the European Central Bank (ECB) is likely to remain cautious. It seems unwilling to tighten policy in an environment marked by weak growth and declining industrial output — leaving the euro vulnerable to ongoing selling pressure.
On the other hand, the U.S. dollar faces its own internal challenges. The partial government shutdown and lack of official economic data have created a temporary information gap, yet the greenback continues to benefit from its safe-haven appeal. Markets are still pricing in roughly 90% odds of two additional Fed rate cuts before year-end, driven by weaker manufacturing and labor market concerns. However, even such dovish expectations haven’t significantly undermined the dollar, as U.S. monetary policy remains relatively tighter than that of the eurozone — a factor that continues to support the dollar’s dominance.
Geopolitical tensions further complicate the landscape. The renewed escalation in trade tariffs between Washington and Beijing threatens global supply chains and adds pressure on export-oriented economies within the eurozone — particularly Germany, which is heavily reliant on manufacturing. Meanwhile, political instability across Europe, from France to Italy, continues to weigh on investor confidence. French President Emmanuel Macron’s formation of a new government has failed to calm opposition forces, while parliamentary calls for a vote of no confidence add an extra layer of political uncertainty at the heart of Europe. These dynamics make it difficult to envision a strong euro recovery until both economic and political conditions stabilize.
From a technical perspective, price action shows that 1.1550 remains a key support level, while the 1.1600–1.1650 area represents strong resistance that has repeatedly capped upward movements. A decisive break below current support could open the door toward 1.1450, especially if Fed Chair Jerome Powell delivers remarks perceived as less dovish than expected. Conversely, a mild improvement in Germany’s ZEW Economic Sentiment Index or industrial data could trigger a short-lived corrective bounce toward 1.17, though such a scenario appears less probable given the prevailing fundamentals.
In my professional assessment, the broader trend for EUR/USD remains bearish in the medium term, with limited prospects for a sustained recovery before year-end. The current mix of unstable inflation, renewed trade tensions, and diverging monetary policies makes it difficult for the euro to regain investor appeal. Even if the Fed proceeds with additional rate cuts, the yield differential between U.S. and European assets will likely continue to favor the dollar. Only a clear improvement in eurozone growth indicators or a significant easing in global trade frictions could meaningfully shift the balance — neither of which seems imminent.
In conclusion, Germany’s inflation uncertainty and the global market calm are not signs of upcoming stability but rather a tense pause before broader movements ahead. Markets remain defensive, implying that any euro rebound will likely be temporary and limited in scope. The broader direction continues to point toward gradual weakness, with the pair potentially testing below 1.15 in the coming weeks unless supportive European data emerges. In this environment, the key question is not whether the euro will weaken, but how much further it can hold before facing another wave of structural pressure reflecting a deeper crisis of confidence in the European economy as a whole.
Technical Analysis of ( EURUSD ) Prices:
The four-hour chart of the EUR/USD pair shows continued trading within a limited corrective range following the recent downward wave that pushed the price to test a strong support area near the 61.8% Fibonacci retracement level at 1.1560–1.1580. The chart also reveals clear consolidation within a downward-sloping channel, accompanied by weak bullish momentum as reflected by the oscillators, with the stochastic indicator fluctuating near the oversold zone without any clear signal of a confirmed bullish reversal so far.
Moreover, the continuation of prices below the resistance level of 1.1650 (which coincides with the recent consolidation high) keeps the bearish scenario intact, with the possibility of targeting the 78.6% Fibonacci level near 1.1500 if the current support is broken with a clear close below it. On the other hand, holding above 1.1600 and surpassing 1.1650 could support a limited upward correction toward 1.1700 – 1.1720, a major resistance zone that also represents the upper boundary of the medium-term downtrend.
Overall, the technical picture favors sellers as long as the pair remains below the main moving average and the 0.382 Fibonacci line at 1.1709, with no strong momentum indicating a trend reversal. Therefore, downward pressure is likely to continue in the coming sessions unless there is an improvement in risk appetite or positive economic data from the Eurozone supporting a temporary rebound. Cautious trading remains the most appropriate approach amid clear volatility and a fragile balance between supply and demand near current levels.
Support levels: 1.1550 – 1.1500 – 1.1380
Resistance levels: 1.1650 – 1.1700 – 1.1720