The European Central Bank (ECB) is set to announce its rate decision later this week, with markets widely expecting no change in policy. The consensus view is that the ECB is approaching the lower bound of its easing cycle. ECB President Christine Lagarde has emphasised a data-dependent approach, highlighting the importance of evaluating incoming inflation, wage, and growth figures before committing to further policy adjustments. Lagarde has avoided signalling a predetermined path, making it clear that decisions will be made on a meeting-by-meeting basis, even as inflationary pressures continue to ease gradually.
Looking at the bigger picture, the policy divergence between the ECB and the US Federal Reserve (Fed) is narrowing, which has implications for forex traders. The Fed has already begun cutting rates, and there is growing market speculation about a more dovish stance in 2026, potentially under new leadership more inclined to support growth and employment through easing measures. Meanwhile, the ECB appears closer to its terminal policy rate, limiting the potential for aggressive additional cuts in the euro area.
This shift supports the recent rise in the EURUSD pair. As rate differentials compress and expectations for future US easing increase, the euro benefits from a more constructive fundamental backdrop. Although short-term price movements will remain sensitive to economic data from both sides of the Atlantic, the combination of a data-driven but relatively constrained ECB and a potentially accommodative Fed outlook underpins the euro’s medium-term bullish prospects.
Technical Analysis
Technically, the EURUSD has been advancing for four consecutive weeks, recovering steadily from September lows amid improving sentiment related to the narrowing policy gap. The pair recently broke above the 61.8% Fibonacci retracement level of the decline from the September high, set at 1.1746, a key technical milestone linked to the highest price since 2021. This breakout initially propelled further gains, encouraging buyers to target higher resistance levels.
Earlier today, EURUSD moved above a critical resistance zone between 1.1779 and 1.1788, an area that had previously capped rallies. The breakout took the pair briefly to 1.1803, the highest level since 24 September. However, buying momentum was not sustained, and the price has since slipped back below this resistance band, currently trading near 1.1771. This failure to hold above the breakout zone signals caution for buyers and suggests the market may need to consolidate or correct before attempting another advance.
Near-Term Outlook
With the pair now below the 1.1779–1.1788 resistance zone, this area acts as a strong level for sellers. As long as EURUSD remains under this band, the near-term bias leans towards a pullback rather than an immediate continuation higher.
Traders should watch these downside levels as potential support targets:
– 1.1762: last week’s high and an initial downside reference
– 1.1746: the previously broken 61.8% retracement level, now key support
– 1.1693: the midpoint of the trading range since mid-September, representing a deeper corrective target
Such moves would be viewed as corrective within the ongoing uptrend rather than signalling a reversal.
Upside Potential
On the other hand, a firm break back above 1.1788 would invalidate the recent failed breakout, putting buyers back in control. If this occurs, the following resistance levels become targets:
– 1.1818: highs from 23–24 September
– 1.1829: the July 1 high
– 1.1918: this year’s peak and the next major bullish objective
Summary
Overall, EURUSD remains in a medium-term bullish trend, but the inability to sustain gains above key resistance introduces short-term risks. The level between 1.1779 and 1.1788 has become a decisive zone—holding above favours buyers; falling below increases the chance of a corrective pullback.
Traders should monitor these levels closely to define risk and potential entry or exit points.
Original Source: Greg Michalowski of investinglive.com
