EUR/USD extends its rebound on Thursday, climbing to multi-day highs around 1.1680, a region also coincident with its temporary 55-day SMA.
The extra recovery follows further loss of momentum in the US Dollar (USD), accompanied by extra weakness in US Treasury yields across the board. That said, the US Dollar Index (DXY) stays under pressure, sliding again to test multi-day lows near the 98.40 zone.
In the meantime, renewed unease over US–China trade tensions keeps markets cautious, with traders also eyeing fresh comments from Federal Reserve (Fed) officials for direction.
Trade tensions back in focus
Markets are once again keeping a close watch on the US–China dynamic. Investors are waiting to see if President Trump and China’s Xi Jinping will meet later this month in South Korea, though relations remain far from settled.
China’s recent move to restrict rare earth exports sparked a strong reaction from Washington, with Trump threatening triple-digit tariffs on Chinese imports and reigniting fears of another full-blown trade war.
Still, both sides have since tried to cool nerves: Treasury Secretary Scott Bessent and China’s Commerce Ministry both pointed to ongoing communication between their teams, hinting there’s still room for compromise and perhaps an extension of the current tariff truce.
Fed keeps easing door ajar
In the US, the Federal Reserve (Fed) cut interest rates by 25 basis points on September 17, citing softer labour data while acknowledging that inflation remains “somewhat elevated”.
The new dot plot leaned dovish, signalling roughly 50 basis points of additional easing by year-end and smaller adjustments through 2026–27. Growth expectations were lifted slightly to 1.6%, unemployment held at 4.5%, and inflation forecasts were unchanged.
Not all policymakers agreed: incoming governor Stephen Miran reportedly pushed for a larger half-point cut but couldn’t win over the committee.
At his subsequent press conference, Chair Jerome Powell noted that job creation and household spending had both cooled, with headline PCE inflation at 2.7% and core at 2.9%. He said tariffs were keeping some goods prices sticky, even as services inflation eased. Overall, Powell hinted that the Fed may be edging toward neutral rather than starting a deeper rate-cutting cycle.
The September FOMC Minutes echoed that view: open to further easing if needed, but in no hurry.
Earlier this week, Powell reiterated that hiring momentum was slowing and that the Fed would continue to take things “one meeting at a time,” balancing a softening labour market against still-high inflation.
ECB happy to wait and watch
The European Central Bank (ECB) kept policy unchanged at its September meeting, maintaining a cautious, meeting-by-meeting stance. Officials said inflation should gradually return to target, projecting core inflation to average 2.4% in 2025 before easing toward 1.9% in 2026 and 1.8% in 2027.
President Christine Lagarde said policy is “in a good place,” noting that risks look balanced for now and that future moves will depend entirely on incoming data.
Minutes from that meeting struck a similar tone: measured but not pessimistic. Policymakers sounded slightly more confident about euro area growth and saw little need for further stimulus, even with the backdrop of US tariff risks.
Traders turn cautious on the Euro
Positioning data suggests traders are starting to take a more guarded approach to the Euro (EUR). The latest available Commodity Futures Trading Commission (CFTC) figures, from late September, showed net long positions in EUR falling to their lowest since July, with institutional investors also trimming short exposure.
Technical landscape
The continuation of the recovery in EUR/USD appears exclusively a US Dollar theme.
Further gains should leave behind the transitory 55-day SMA at 1.1683, prior to the October top at 1.1778 (October 1), and the 2025 ceiling of 1.1918 (September 17), all preceding the psychological 1.2000 barrier.
In the opposite direction, the October base at 1.1542 (October 9, 14) emerges as the initial support. Once cleared, the pair could embark on a move to the August floor at 1.1391 (August 1), before the critical 200-day SMA at 1.1247 and the weekly low at 1.1210 (May 29).
Looking at the broader picture, while above the 200-day SMA at 1.1247, the near-term outlook for EUR/USD should remain positive.
Momentum indicators look somewhat constructive: the Relative Strength Index (RSI) rebounded further and approaches the 50 threshold, suggesting some building upside impulse. Furthermore, the Average Directional Index (ADX) near 19 indicates that the ongoing trend could be picking up some pace.
EUR/USD daily chart
Waiting for a catalyst
For now, a sustained move higher in EUR/USD still needs a clear and strong catalyst: a softer tone from the Fed, waning demand for US assets, steady guidance from the ECB, or progress on trade could finally give the single currency the push it needs to gather upside traction on a more convincing fashion.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
