EUR/USD Price Forecast: Caution prevails ahead of US CPI

Introduction to the Current Market Situation

The EUR/USD currency pair is having a tough time building on the gains it made on Wednesday, briefly surpassing the 1.1600 mark on Thursday before stalling. This move extends the bounce from recent multi-day lows, even as the US Dollar (USD) continues to strengthen and both US and German yields tick higher. The US Dollar Index (DXY) is holding close to 99.00, helped by calmer trade sentiment, a few fresh geopolitical jitters, and the continued stalemate over the US government shutdown.

Washington Standoff Drags On

The US government shutdown rolls into yet another day, with little sign of a breakthrough. Lawmakers remain at an impasse, and while the Senate is set to reconvene on October 28 for another vote, few expect a different outcome. Now in its 23rd day, this is already the second-longest shutdown in US history. If it stretches to November 5 (day 36), it’ll set a new record. Each day the government stays closed adds more strain on the economy: hundreds of thousands of federal workers aren’t being paid, public services are disrupted, and business confidence is starting to wobble. The longer this drags on, the bigger the risk to jobs and GDP growth, both of which are already under pressure.

Trade Tensions Ease, but Only Slightly

Markets are keeping a close eye on US–China developments. There’s chatter that President Trump and President Xi Jinping could meet later this month in South Korea, though relations remain fragile. Beijing’s move to tighten restrictions on rare earth exports has reignited tensions, prompting a sharp response from Washington and including fresh tariff threats from Trump. That flare-up has brought trade risks back into focus for investors. Still, there are small signs of diplomacy. Both Treasury Secretary Scott Bessent and China’s Commerce Ministry say communication channels remain open, hinting that both sides are still willing to talk and perhaps extend the current truce.

Fed Keeps Its Options Open

The Federal Reserve (Fed) looks ready to deliver another 25-basis-point rate cut at its October 29 meeting. The latest “dot plot” came across as dovish, pointing to about 50 basis points of additional easing by year-end, followed by smaller adjustments through 2026–27. Growth forecasts were nudged slightly higher to 1.6%, while unemployment stayed at 4.5% and inflation projections were unchanged. Minutes from the last meeting reinforced the Fed’s flexible approach, as officials are ready to act again if needed, but there’s no sense of urgency. Fed Chair Jerome Powell noted that the labour market has cooled, saying decisions will be made “meeting by meeting” as the central bank balances weaker jobs data against persistent inflation.

ECB Stays in No Rush Mode

Across the Atlantic, the European Central Bank (ECB) also held steady at its September meeting, keeping its patient, data-driven stance. Officials reiterated that inflation should gradually move toward target, with core inflation projected at 2.4% in 2025, then easing to 1.9% in 2026 and 1.8% in 2027. President Christine Lagarde struck a calm tone, saying policy is “in a good place” and risks are now more balanced. She stressed that any future tweaks will depend entirely on incoming data. The meeting’s Accounts echoed that view: cautiously optimistic, with policymakers slightly more upbeat on eurozone growth and seeing little reason for further easing. Markets are now pricing in roughly 19 basis points of rate cuts by the end of 2026, reinforcing the impression that the ECB’s easing cycle is basically done.

Technical Analysis of EUR/USD

EUR/USD maintains the rangebound theme so far this week, while investors seem to be waiting for fresh clues on direction from Friday’s PMI gauges and US inflation data. Looking south, the loss of the October base at 1.1542 (October 9, 14) could open the door to a test of the August floor at 1.1391 (August 1), prior to the significant 200-day SMA at 1.1280 and before the weekly trough at 1.1210 (May 29). Conversely, the weekly high at 1.1728 (October 17) comes first, seconded by the October ceiling at 1.1778 (October 1). Extra gains from here should target the 2025 peak of 1.1918 (September 17) ahead of the psychological 1.2000 mark. Looking at the broader picture, while above the critical 200-day SMA, further gains appear on the cards. Additionally, momentum indicators lean toward further weakness: the Relative Strength Index (RSI) navigates around 44, exposing extra retracements, while the Average Directional Index (ADX) near 16 indicates a juiceless trend.

Waiting for a Spark

For now, EUR/USD is still looking for a reason to move. A dovish surprise from the Fed, fading appetite for US assets, a steadier hand from the ECB, or a meaningful thaw in trade tensions could finally give the euro the push it’s been waiting for.

German Economy FAQs

The German economy has a significant impact on the Euro due to its status as the largest economy within the Eurozone. Germany’s economic performance, its GDP, employment, and inflation, can greatly influence the overall stability and confidence in the Euro. As Germany’s economy strengthens, it can bolster the Euro’s value, while the opposite is true if it weakens. Overall, the German economy plays a crucial role in shaping the Euro’s strength and perception in global markets.

Conclusion

In conclusion, the current market situation is complex and influenced by various factors, including the US government shutdown, trade tensions, and the monetary policies of the Fed and ECB. The EUR/USD currency pair is rangebound, waiting for a spark to move. The German economy plays a significant role in shaping the Euro’s value, and its performance can greatly influence the overall stability and confidence in the Euro. As the market continues to evolve, it is essential to keep a close eye on these factors and their impact on the EUR/USD currency pair.