Current Market Drivers for EUR/USD
Technical Positioning: Strong Downtrend Near Critical Support
The EUR/USD pair has continued its downward trajectory with a strong trend confirmed across multiple timeframes. Technical indicators show ADX above 25 on H4 and H1, confirming the established downtrend direction despite oversold conditions at RSI 29.18 on H1. The current price action is consolidating near intraday lows around 1.1729 while trading below key psychological levels of 1.1800 and 1.1820, having broken the 50% Fibonacci retracement level from the upward move between 1.1658 swing low to 1.1918 high.
Immediate Price Context
The market exhibits a clear downtrend across H4 and H1 timeframes characterized by lower highs and lower lows despite current oversold conditions on H1. The daily chart shows consolidation near 1.1726 after declining from 1.1780 with no significant reversal signals present, indicating the trend remains firmly in place.
Key Support Levels at Current Price Zone
- Psychological level: 1.1720 (round number resistance in bearish context)
- Recent swing low: 1.17263 from the previous daily candle
- Daily range confirmation: Current price near 1.1729 represents today's intraday low
Trend Continuation Indicators
The strong directional bias across multiple timeframes with ADX consistently above 25 for H4 and H1 confirms the downtrend is intact, while RSI remaining in oversold territory at 29.18 suggests potential short-term reversal momentum but not overriding the established trend direction.
Eurozone Economic Indicators and ECB Policy Outlook
ECB's Steady Stance on Interest Rates
The European Central Bank has signaled no urgency for further rate cuts as officials confirm policy is appropriate at current levels. ECB policymaker Edward Scicluna stated interest rates are "fine where they are" with inflation projected slightly under 2%, describing the central bank's position as neutral and emphasizing there is no immediate need to adjust unless conditions change materially.
Inflation Expectations and Balance of Risks
ECB officials have confirmed that slight deviations from the 2% target are acceptable, with Scicluna noting inflation projections for 2027 at 1.9% aren't concerning. Both Scicluna and Latvia's Martins Kazaks indicated policy is currently "in a good place" after eight cuts delivered previously.
ECB Policy Stability Impact on EUR/USD
This steady ECB stance has provided crucial support for the euro as markets increasingly price in limited further rate reductions. RBC Capital Markets strategists have highlighted that with the European Central Bank likely to keep rates unchanged for an extended period, supported by resilient growth outlook and policy stability, the euro could strengthen toward $1.24 by late 2026.
Trade-Related Considerations
ECB officials are monitoring trade tensions as a potential risk factor alongside exchange rate movements. However, Scicluna emphasized that fiscal spending and economic resilience support keeping policy steady rather than reacting to market fluctuations or external pressures on the euro's value.
US Economic Data and Federal Reserve Influence
Fed Rate Cuts Impacting Dollar Strength
The US dollar has strengthened following Fed rate cuts, creating headwinds for EUR/USD. Markets initially priced in a Fed rate cut but subsequently recovered the greenback from its lows as policy divergence between central banks became clearer with the ECB holding steady while the Federal Reserve resumed cutting rates.
US Economic Data Context
The recent economic data indicates the US economy is showing mixed signals. The US Flash Manufacturing PMI forecast at 51.8 (previous: 53.3) and Services PMI forecast at 53.8 (previous: 55.4) suggest potential deceleration in manufacturing activity, while strong consumer spending metrics have provided some counterbalance to softening economic indicators.
Policy Divergence as Key Driver
The central bank policy divergence has become the primary driver of EUR/USD directionality with the Fed resuming rate reductions and signaling more cuts ahead. This creates a compelling narrative for dollar strength against most major currencies, including the euro, despite potential short-term pullbacks in USD strength.
Key Events for the Next Two Weeks (Sept 23 - Oct 5)
Major Economic Releases to Monitor
The period from September 23 through October 5 features multiple high-impact releases that will shape market sentiment. Key events include Germany's Flash Manufacturing PMI at 50.0 (previous: 49.9) and Services PMI at 49.5 (previous: 50.1), Eurozone manufacturing data, US Final GDP q/q forecast at 3.3% (same as previous), unemployment claims with a forecast of 235K, Core PCE Price Index m/m at 0.2%, and Fed Chair Powell's speaking engagement on September 23.
September 23 Economic Calendar Highlights
- German Manufacturing PMI (High Impact): Forecast of 50.0 versus previous reading of 49.9, indicating potential improvement in manufacturing conditions
- Eurozone Flash Manufacturing PMI (Medium Impact): Forecast at 50.7 compared to previous 50.5 showing continued expansionary trend
- US Core PCE Price Index m/m: Major inflation metric forecasted at 0.2% versus prior reading of 0.3%
- Federal Reserve Chair Powell Speech (High Impact): Will follow critical US manufacturing and services data releases on the same day
September 25 Economic Calendar Highlights
- US Final GDP q/q: Key growth indicator with forecast at 3.3% versus previous reading of 3.3%
- Core Durable Goods Orders m/m: Forecasted to decline by -0.2% after a prior increase of 1.1%
September 26 Economic Calendar Highlights
- US Core PCE Price Index m/m (High Impact): The Fed's preferred inflation gauge with forecast at 0.2%, crucial for assessing the timing of further rate cuts
Potential Market Reactions and Scenarios
The upcoming economic releases will be pivotal in determining whether EUR/USD can find support near current levels or continue its downward trajectory toward lower targets. The German manufacturing data on September 23 could provide a short-term boost to eurozone sentiment if it exceeds forecasts, potentially limiting further downside for the pair.
Bullish Scenario
A positive surprise in Germany's Flash Manufacturing PMI (above forecast of 50.0) combined with weaker-than-expected US economic data could provide temporary relief for EUR/USD, allowing a bounce toward resistance levels around 1.1735 and potentially extending to the daily high threshold at 1.17926 if Fed policy expectations become more dovish.
Bearish Scenario
Conversely, failure of German manufacturing data (below forecast) combined with stronger US economic indicators could trigger a breakdown below current support levels near 1.1720 and potentially lead to further downside toward the next key zone around 1.1680 as observed in recent price structure.
Key Technical Levels for Market Reactions
- Immediate Support Break: A break below 1.1726 could open a path to test support at 1.1650 with potential extension toward the next major zone near 1.1680 and eventually 1.1650
- Resistance Rejection: Failure to make progress above 1.1735 could confirm bearish continuation, while a successful test of this level may lead to further downside momentum toward the daily range low at 1.1729
Economic Data Interpretation Frameworks for EUR/USD Directionality
Market reaction patterns suggest that German economic data will be particularly influential on eurozone sentiment, while US inflation metrics and GDP figures will directly impact Federal Reserve policy expectations which in turn drive USD strength against the pair. The core PCE price index at 0.2% is especially critical as it represents the Fed's primary target metric for assessing inflation trends.
Event Timing Impact Assessment
The upcoming medium impact event today (September 22) with US FOMC Member Miran speaking requires caution due to potential price distortion near current support levels. Market participants should avoid new positions until after this release concludes, as the US session will dominate trading activity following the European close.
Technical vs Fundamental Alignment
The technical setup currently shows strong bearish momentum while fundamental indicators suggest a continued divergence between ECB and Fed policy stances that favors USD strength. This alignment creates favorable conditions for potential further downside movement if support at 1.1720 breaks, but the oversold condition on H1 could provide temporary resistance to rapid declines.
Longer-Term Outlook Context
RBC's forecast of euro strengthening to $1.24 by late 2026 provides important context for current market positioning despite near-term technical weakness. This expectation is based on the ECB holding rates steady while Fed policy continues to ease, creating a sustained period of favorable monetary conditions for European assets relative to US markets.
Market Sentiment and Positioning Considerations
The currency pair's movement toward 1.1720 support has triggered caution among technical traders who typically avoid positions near psychological levels during high-impact events. The current price proximity to critical support (1.1726) combined with oversold conditions lacks clear directional confirmation, making it difficult for most market participants to establish new positions.
Technical Confirmation Needed
The next key level to watch will be the 1.1720 psychological barrier as a breakout or rejection here could provide decisive directionality for EUR/USD price action through September's end and into early October. A close above this zone would indicate potential short-term reversal momentum, while failure to hold support may accelerate downside movement toward lower targets.
Market Expectations vs Reality
The current market pricing reflects limited expectations of immediate ECB rate cuts with the central bank signaling patience on policy adjustments. This has created a more stable environment for eurozone currencies compared to recent periods when frequent interest rate decisions were anticipated, reducing volatility and providing clearer directional signals based purely on economic data releases rather than speculative policy moves.
Conclusion: Navigating the Near-Term Path
The EUR/USD pair faces a critical period from September 23 through October 5 as multiple high-impact events will determine whether current support levels hold or break. The technical structure shows strong downtrend momentum with price approaching key psychological and recent swing point supports, while fundamental drivers indicate continued policy divergence favoring USD strength in the near term.
Traders should monitor German manufacturing data releases on September 23 for potential eurozone sentiment shifts that could provide temporary relief to EUR/USD. The US Core PCE Price Index m/m release will be especially critical as it directly impacts Federal Reserve rate expectations which influence dollar strength against most currencies including the euro.
With key support at 1.1720 and resistance around 1.1735, market participants should avoid new positions until after major events on September 23-26 to prevent being caught in volatility spikes from high-impact economic releases that could distort price action near current technical levels.
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