FX.co ★ VIT | EUR/USD

Market Analysis and Insights: EUR/USD remains in a broadly constructive medium-term trend, although the pair has entered a short-term consolidation phase after a strong advance. The euro has benefited from improving euro-area economic activity, expectations of further European Central Bank tightening, and continued concerns surrounding US fiscal policy and the dollar’s longer-term credibility. Eurozone composite PMI increased to 52.1 in August, its strongest level since November, while the US dollar has recently faced pressure from Treasury-market uncertainty. However, geopolitical tensions surrounding Iran are encouraging intermittent safe-haven demand for USD. At 1.1664, the short-term bias is moderately bullish above 1.1600, but immediate momentum has weakened, and the pair remains vulnerable to a corrective pullback. Fundamental Analysis: The euro's fundamental backdrop has improved considerably. Eurozone inflation accelerated to 2.9% in July from 2.8% in June, remaining above the European Central Bank's 2% target. Core inflation was around 2.5%, while services inflation remained elevated at approximately 3.3%. The increase in inflation has strengthened expectations that the ECB will need to continue tightening monetary policy, particularly because higher energy prices connected to geopolitical tensions have created renewed upside risks. A Reuters economist survey recently indicated that 83% of economists expected another ECB rate increase in September, with the deposit rate expected to reach 2.50%. At the same time, economic activity is showing encouraging signs. Eurozone GDP expanded 0.4% in the second quarter, while August composite PMI climbed to 52.1, supported by stronger manufacturing, new orders and renewed export growth. Manufacturing PMI reached 52.8, its strongest level in more than four years, while employment increased for the first time in 2026. This combination of persistent inflation and improving growth creates a favorable environment for the euro because it gives policymakers more justification to maintain or increase interest rates. Capital flows are also becoming more supportive as investors look toward European assets amid concerns about US fiscal sustainability. European equities have attracted renewed inflows, while the euro has appreciated around 3% from its June lows. The main downside risk is that prolonged geopolitical tension and high energy costs could eventually damage European consumer confidence and industrial activity. The US dollar's fundamental picture is more mixed and is currently one of the most important drivers of EUR/USD. The Federal Reserve maintained its benchmark rate at 3.50%–3.75% at its July meeting, but policymakers were divided over inflation risks, with three officials favoring a 25-basis-point increase. Several policymakers indicated that additional tightening could become necessary if inflation remains elevated. July US CPI rose 3.4% year-on-year, while core CPI eased to 2.5%, keeping inflation above the Fed's objective but showing some moderation. Meanwhile, the US economy has demonstrated considerable resilience: August US business activity accelerated sharply, with the composite PMI reaching its strongest level since April 2022 and employment growth improving. These data prevent the dollar from becoming structurally bearish. Nevertheless, investors remain concerned about the US fiscal position, with federal debt above $40 trillion and long-term Treasury yields elevated. The 10-year Treasury yield has recently traded around 4.7%, while the 30-year yield has remained above 5%, increasing concerns about long-term borrowing costs and debt sustainability. The upcoming Jackson Hole appearance by Federal Reserve Chair Kevin Warsh is therefore particularly important because traders want clearer guidance about inflation and future rate policy. If the Fed signals that rates may need to remain high or rise again, the dollar could recover. Conversely, if US fiscal concerns continue to dominate and markets interpret Fed communication as less hawkish, EUR/USD could extend its advance. Technical Analysis – Price Structure, Support and Resistance The H4 price structure remains bullish, but the market is currently showing signs of consolidation after reaching higher levels. At 1.1664, EUR/USD is holding above the psychologically important 1.1600 area, which is now an important support region. The recent advance has pushed the pair into a zone where buyers are encountering stronger profit-taking, meaning the next directional move requires a break of nearby resistance. Immediate resistance is concentrated around 1.1670–1.1685, followed by 1.1700 and then 1.1730–1.1750. A sustained H4 close above 1.1685 would strengthen the bullish structure and expose 1.1700 and 1.1730 as the next upside objectives. Above 1.1750, the market could begin targeting the 1.1800 psychological level. On the downside, initial support lies around 1.1650–1.1640, followed by 1.1600–1.1580. A decisive H4 close below 1.1580 would indicate that the current bullish structure is losing strength and could open the way toward 1.1540–1.1520. Recent candles around the upper part of the range suggest hesitation rather than a confirmed reversal. Buyers remain in control of the broader structure, but sellers have gained short-term influence around 1.1670–1.1685. Therefore, the key battle is between buyers defending 1.1600–1.1640 and sellers protecting the 1.1680 region.

The indicator picture is more cautious than the broader price structure. Current technical readings show EUR/USD around 1.1664–1.1666, with short-term indicators leaning bearish even though the longer-term moving-average structure remains constructive. RSI(14) is around 38–44, depending on the calculation window, placing momentum below the neutral 50 threshold and showing that recent buying pressure has weakened. MACD is marginally negative, while ADX is around 29–37, suggesting that the current directional move still has meaningful strength. ATR(14) is approximately 0.0007–0.0008, pointing to relatively contained short-term volatility. The moving averages provide an important distinction: the short-term 5-, 10-, 20- and 50-period averages are generally above the current price and are generating sell signals, while the 100- and 200-period averages remain below the market and continue to indicate a broader bullish structure. The 200-period average is around 1.1600–1.1620, making that zone especially important for H4 trend protection. This configuration suggests that EUR/USD is experiencing a short-term bearish correction inside a larger bullish trend rather than a confirmed major reversal. A bullish candlestick rejection from 1.1600–1.1640 followed by a move back above 1.1670 would strengthen the case for renewed upside. Conversely, persistent bearish candles below 1.1640 and especially a break beneath 1.1600 would shift short-term control toward sellers. Trading Outlook: For the bullish scenario, traders should monitor 1.1640–1.1650 for evidence of renewed demand. A successful defense of this area followed by a move above 1.1670–1.1685 would provide a stronger continuation signal. A confirmed H4 breakout above 1.1685 could target 1.1700, followed by 1.1730–1.1750. A more ambitious extension could reach 1.1800 if dollar weakness accelerates. For risk management, a bullish setup could use a protective stop below 1.1600, depending on entry location and position size. The bearish scenario becomes more attractive if EUR/USD repeatedly fails around 1.1670–1.1685 and then breaks below 1.1600 on an H4 closing basis. Such a move would suggest that sellers have successfully transformed the current consolidation into a deeper correction. Initial downside targets would be 1.1580, followed by 1.1540–1.1520. A sustained break below 1.1520 would significantly weaken the medium-term bullish structure.