EUR/USD Market Summary: Key Drivers and Current Positioning
The EUR/USD currency pair has demonstrated significant bullish momentum in recent sessions, trading above the critical 1.1750 level as market participants focus on relative monetary policy positioning between the European Central Bank (ECB) and Federal Reserve (Fed). The cross continues to benefit from a combination of ECB hawkish commentary, limited impact from France's credit rating downgrade, and anticipation around upcoming US central bank decisions.
EUR/USD has moved into a strong bullish channel that began developing following last week's ECB monetary policy meeting. Current price action reflects the market pricing in minimal further easing for European rates while expecting more dovish Fed actions this week. The pair reached new monthly highs near 1.1780, marking significant progress toward previous yearly resistance levels.
The recent EUR/USD gains were reinforced by ECB board member Isabel Schnabel's comments on September 15th where she stated interest rates are "in a good place" and emphasized that upside inflation risks continue to dominate. She also noted the euro area growth is expected to exceed potential, while warning of limited pass-through from a stronger euro.
ECB Policy Stance: The Hawkish Tone Becomes Increasingly Prominent
The ECB's recent policy communication has shifted toward greater confidence in current interest rates being appropriate. This represents a clear shift from the previous month's more cautious language around potential rate cuts, as evidenced by multiple ECB officials' comments.
Isabel Schnabel's remarks were particularly significant as they signaled a broader consensus within the Governing Council that further easing is unlikely to be necessary or desirable at this juncture. Her statement about rates being "in good place" was followed by her assessment of upside inflation risks dominating, which directly contradicts expectations for imminent ECB rate cuts.
The bank's September monetary policy decision left all three key interest rates unchanged with the deposit rate remaining at 2.00%. The Governing Council emphasized that the current stance is appropriate and reiterated a meeting-by-meeting approach to policymaking - signaling greater confidence in existing conditions than previously expressed.
This hawkish shift from ECB officials has been reinforced by other members, including Kazaks who recently stated "reduction in ECB rates is already very significant" with no reason to cut rates at the moment. This represents a strong message that rate cuts are effectively over for the current cycle and may even open the door to potential future hikes.
France's Credit Rating Downgrade: Limited Impact on EUR/USD
Fitch Ratings' downgrade of France from AA- to A+ with a stable outlook did not significantly impact EUR/USD as markets quickly shifted focus toward US monetary policy developments. The rating agency cited "growing political division and polarization" increasing the likelihood of delays to fiscal consolidation.
The market viewed this development as country-specific rather than indicative of broader Eurozone issues, particularly given that French bond yields remained in line with other European sovereigns - especially when compared to Italian, Spanish, and Portuguese bonds. These comparisons were important because they suggested no systemic risk emerged from France's political situation.
Scotiabank analysts noted the euro area trade balance came in lower than expected for July but emphasized "the relative central bank policy remains a core component of our bullish EUR view" which continues to be underscored by this week's expectedly dovish Fed. This market perspective has been validated as the Eurozone bond markets have remained quiescent despite France's downgrade.
Technical Analysis: Current Price Action and Key Levels
EUR/USD is now trading in a strong upward channel that began developing after breaking above key resistance levels established earlier this month. The pair recently extended gains beyond 1.1750, which represents both an intermediate pivot level and the September 9th high.
The technical structure shows significant bullish momentum with RSI confirming the shift to decidedly bullish territory near 60 - a positive divergence from neutral readings previously observed in August. This is consistent with the pair making higher highs (HH) on the daily chart, which remains one of the most important signs for trend continuation.
Key resistance levels currently identified include:
- 1.1780: September 9th high
- 1.18-1.1830: Yearly highs and August 22nd peak reached after Powell's Jackson Hole speech
- 1.20: Psychological level and 2021 historical resistance zone
Support levels remain in focus as the market approaches these higher resistance areas:
- 1.1750: Immediate support and intermediate pivot point (+/- 150 pips)
- 1.1650: Key technical support level that has held since earlier this year
- 1.16: Major psychological and previous consolidation zone support
- 1.1470: Pivotal resistance for bearish market structure formation below this level
The current price action confirms the pair is operating within a clear bullish channel that's been in place since August 2025, with recent gains extending toward but not yet breaching the main yearly high at 1.1830.
Upcoming Events and Market Focus: September 17-28
The upcoming week will be defined by several critical events that could significantly impact EUR/USD direction through mid-September:
US Federal Open Market Committee Meeting (Sept 17)
Wednesday's Fed policy meeting represents the single most important event for foreign exchange markets this week. The market has already priced in a 25 basis point rate cut with expectations that Chairman Jerome Powell will signal more aggressive easing ahead.
Key elements to watch include:
- The Federal Funds Rate decision (forecast at 4.25% from previous 4.50%)
- Forward guidance and FOMC Economic Projections on future rates
- Powell's press conference following the announcement, which will likely provide significant insight into monetary policy trajectory
The market appears to be pricing in a dovish Fed decision with expectations for at least one more rate cut later this year. A particularly aggressive easing stance from Chairman Powell could strengthen EUR/USD as it reduces relative yield differentials against the USD.
European Economic Calendar Highlights (Sept 16-19)
While US market events dominate attention, European data releases will continue to provide context for the Eurozone's economic outlook:
- September 17: UK CPI y/y forecast at 3.8% with previous reading also at 3.8%
- September 18: Australia Employment Change (forecast +21.2K) and Unemployment Rate (forecast 4.2%)
- September 19: Japan BOJ Policy Rate (<0.5% forecast), Monetary Policy Statement, and Press Conference
The UK CPI data represents a key inflation indicator for the European economy's largest trading partner with potential to influence EUR/USD if it deviates significantly from expectations.
Eurozone Economic Context: Underlying Fundamentals Supporting Stronger Euro
Several factors support the euro area economic environment as favorable for a stronger currency against its main counterpart:
The ECB has consistently emphasized that inflation risks remain tilted upward, with Schnabel noting this explicitly in her September 15 comments. This stands in contrast to current US Federal Reserve policy where concerns about softening labor markets have driven expectations of rate cuts.
European growth remains on solid footing as domestic demand continues to counterbalance weaker export performance - a factor highlighted by ECB officials including Isabel Schnabel who stated "growth is likely to exceed potential."
The euro area trade balance for July came in lower than expected, but this was offset by stronger underlying economic data from Germany and France. These economies have maintained resilience despite political challenges that have affected the French credit outlook.
Outlook: EUR/USD Through September 28
Based on current market positioning, technical structure, and upcoming events through mid-September, several scenarios could unfold for EUR/USD:
Bullish Scenario Development
A dovish Fed decision with aggressive forward guidance would likely propel EUR/USD toward the key yearly high at 1.1830 in the immediate term. If this resistance breaks decisively, subsequent targets include:
- 1.19: Psychological level and multi-year resistance zone
- 1.20: The psychological barrier representing an important milestone for EUR/USD
The technical channel structure suggests that a successful break of 1.1830 could initiate a more extended move toward the upper boundary of this bullish trend, with potential to reach levels seen in early 2024.
Bearish Scenario Considerations
A Fed decision showing less dovish bias than expected would likely trigger immediate profit-taking across EUR/USD. The pair might test key support at:
- 1.1750: Immediate technical and psychological support level
- 1.1650: A more significant intermediate support zone that has held for several weeks
If the Fed signals a hold on further rate cuts or hints at potential future hikes, this could strengthen USD significantly against all major currencies including EUR/USD.
Key Technical and Fundamental Considerations Beyond September 17
As market focus shifts from the Fed meeting to subsequent European data releases:
- The ECB's upcoming speaking calendar remains important with President Lagarde scheduled for appearances on Monday, Wednesday, and Friday of next week (September 16-19)
- UK CPI data released September 17 could provide additional context about inflation trends in Europe's largest trading partner
- Australia employment figures on September 18 might influence risk sentiment broadly which impacts EUR/USD
- The Japanese monetary policy developments (BOJ Rate Statement and Press Conference) will remain a secondary factor for broader currency markets
The overall technical structure remains bullish with the pair currently above key moving averages, suggesting that even if there's short-term pullback following Fed decision, the longer-term trend favors further EUR/USD gains.
A successful break of 1.1830 resistance level would confirm a new phase in this uptrend and could trigger additional buying interest from technical traders who have been waiting for confirmation to enter long positions against USD. The current price action reflects growing investor confidence that European monetary policy is becoming more attractive relative to the US, which has significant implications for EUR/USD direction over the coming weeks.
As markets focus on Wednesday's Fed meeting and subsequent developments through September 28, investors should closely monitor both the timing of any potential rate cuts as well as accompanying forward guidance from Federal Reserve officials - these elements will be critical in determining whether EUR/USD can extend its bullish momentum toward higher targets.
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