EUR/USD Bullish Momentum Holds Near H4 Resistance Amid USD Weakness, FOMC & ECB Policy Divergence Dominates Outlook - Analysis & Forecast

EUR/USD extends its winning streak for a fifth consecutive day, driven primarily by broad US Dollar weakness ahead of critical central bank announcements. The pair exhibits strong bullish momentum across H4 and H1 timeframes, pushing towards key H4 resistance near 1.1670. Technical indicators suggest overbought conditions on shorter timeframes, hinting at potential consolidation or a minor pullback. Fundamentally, market participants anticipate a Federal Reserve interest rate cut tomorrow, which significantly underpins the EUR/USD rally. Concurrently, the European Central Bank's monetary policy meeting on Wednesday, expected to hold rates steady, further accentuates policy divergence. Improving risk sentiment, fueled by optimism over a potential US-China trade deal, also contributes to the current USD bearish bias. This week's central bank decisions and accompanying guidance are poised to dictate the pair's near-term trajectory, with technical levels serving as critical execution points amidst heightened volatility.

Technical Analysis

Multi-Timeframe Market Structure

The D1 chart shows EUR/USD recovering, closing with a bullish candle on the previous session and holding above the EMA20 at 1.16475. This recovery is fundamentally supported by the prevailing US Dollar weakness, as investors price in an imminent Fed rate cut. While the MACD remains negative, the RSI is neutral at 51.49, and ADX at 22.49 indicates a developing trend. Price is above the SAR at 1.15942, suggesting a potential shift towards a bullish bias from a longer-term perspective, aiming to overcome the EMA50 at 1.16649. The market's anticipation of a dovish Fed provides fundamental tailwinds for this nascent D1 bullish recovery.

On the H4 timeframe, the pair demonstrates strong bullish momentum, with price trading above both the EMA20 (1.16344) and EMA50 (1.16312), which have recently crossed in a bullish configuration. The MACD is positive and rising, and the RSI is strong at 64.24. ADX at 34.52 confirms a strong trend. Price is currently testing the EMA200 at 1.16610, indicating a critical juncture for medium-term direction. The SAR at 1.16267 provides robust dynamic support. The sustained H4 bullish trend aligns with the fundamental narrative of US Dollar underperformance ahead of the Fed's policy decision.

The H1 chart shows very strong bullish momentum, with price trading well above all key EMAs (EMA20 at 1.16492). However, the RSI and Stochastic are significantly overbought at 68.48 and 91.98 respectively, while ADX remains extremely high at 57.11. The M30 timeframe reflects this strength but also hints at potential exhaustion or consolidation, with a smaller bullish candle and slightly reduced MACD momentum, though still positive. The immediate directional bias is bullish, but the overbought conditions suggest caution for fresh long entries, especially given the low-liquidity Asian session. Key intraday support is found near 1.16588 (M30 SAR) and 1.16559 (M30 EMA20). Optimal entry timing involves waiting for a slight pullback to these levels for confirmation, as pre-FOMC positioning could lead to temporary profit-taking despite the overarching bullish fundamental backdrop.

Critical Price Levels & Momentum Assessment

Resistance:

• 1.16674: Recent H1 high, acting as immediate overhead resistance. A break above this level is likely if the Fed delivers a clearly dovish message.
• 1.16700: Psychological level, just above current price action. This level gains significance as the pair approaches it on broad USD weakness.
• 1.17000: Stronger psychological level, potential target for extended bullish moves. This target becomes highly probable if the Fed's rate cut is accompanied by dovish forward guidance.

Support:

• 1.16610: H4 EMA200, acting as dynamic support after recent breach. Sustaining above this level is crucial for the bullish thesis, fundamentally supported by continued USD selling.
• 1.16500: Psychological level, confluence with H1 EMA20. A pullback to this level would represent a healthy consolidation before a potential continuation, especially if pre-FOMC caution induces minor profit-taking.
• 1.16300-1.16340: Confluence of H4 EMA20/EMA50, offering strong structural support. This zone provides a robust technical floor, reinforced by the significant policy divergence expected from the Fed and ECB.

Fundamental Market Drivers

Central Bank Policy & Economic Outlook

The primary fundamental driver for EUR/USD is the significant divergence in monetary policy expectations between the Federal Reserve and the European Central Bank. Investors widely anticipate the Fed to deliver another interest rate cut on Wednesday, forecasting a reduction to 4.00% from the previous 4.25%. This expectation stems from the perception that the tariff impact on prices is temporary, slower job growth persists, and the federal government remains shut down. The US Consumer Price Index (CPI) data for September, showing headline and core inflation rising moderately by 0.3% and 0.2% respectively on a monthly basis, reinforces the Fed's room for easing. A dovish Fed is a strong fundamental tailwind for EUR/USD, as it makes the US Dollar less attractive for yield-seeking investors.

On the Eurozone side, the European Central Bank is expected to hold its Main Refinancing Rate steady at 2.15% at its meeting on Wednesday. While Germany's IFO Business Climate showed a subtle upside surprise, increasing to 88.1, suggesting some optimism, overall market sentiment remains skeptical about the Eurozone's long-term growth outlook. German GDP numbers, due on Thursday, may confirm a technical recession in Germany, which could cap some of the Euro's fundamental strength. Preliminary German CPI for October is expected to show moderate price pressures at 0.2% m/m, and Eurozone CPI Flash Estimate y/y is forecast at 2.1%. The ECB's primary mandate to maintain price stability means that while growth is weak, any signs of persistent inflation could compel a hawkish stance, but the current outlook suggests a cautious hold. The divergence between an easing Fed and a holding ECB provides a clear fundamental impetus for EUR/USD upside. The THINK economic analysis highlights significant upside potential for euro rates if growth becomes more robust, suggesting that any positive surprises from upcoming German or Eurozone data could quickly strengthen the Euro's fundamental position.

Market Sentiment & Risk Environment

Global market sentiment is currently improving, providing an additional layer of fundamental support for EUR/USD. Optimism surrounding a potential trade deal between the US and China has boosted risk appetite, leading to a general weakening of the safe-haven US Dollar. US President Donald Trump's confidence in an imminent trade deal after a meeting with Chinese President Xi Jinping has contributed to this positive sentiment. The US Dollar Index (DXY) is revisiting weekly lows around 98.50, indicating broad-based USD underperformance against major currencies, including the Euro. This risk-on environment, combined with expectations of a dovish Fed, creates a fundamentally conducive environment for EUR/USD to extend its gains.

Integrated Trading Execution

Primary Trading Scenario

• Bias: Bullish - The strong technical bullish momentum, particularly on H4 and H1, combined with the market's expectation of a Federal Reserve rate cut and improving risk sentiment, strongly supports a bullish continuation.
• Trigger/Entry: Buy Limit at 1.16520 (±3 pips). This entry aligns with a technical pullback to strong support levels (near H1 EMA20 and the 1.16500 psychological level), offering an optimal entry point should pre-FOMC consolidation occur before the anticipated USD weakness drives the pair higher.
• Stop-Loss: 1.16450. This stop-loss is placed below the H1 EMA20 and recent technical support, providing a tight risk parameter that is fundamentally justified by the prevailing bearish outlook for the US Dollar post-FOMC.
• Profit Targets:
  • Target 1: 1.16700 - This psychological level aligns with recent H1 highs and represents an immediate resistance test, likely to be reached on initial reactions to a dovish Fed.
  • Target 2: 1.17000 - This stronger psychological level is a plausible target if the Fed's dovishness is pronounced and ECB maintains a relatively stable policy stance, accentuating policy divergence.
• Session Context: Best executed with momentum confirmation during the London session, as liquidity increases. Positions must be managed carefully ahead of tomorrow's high-impact FOMC events, as the market's reaction could be swift and volatile.

Alternative Market Scenario

• Invalidation: Invalidation of the primary bullish scenario occurs with a sustained break and close below 1.16500, particularly if accompanied by a less dovish-than-expected Fed or strong US economic data.
• Bias: Bearish (short-term pullback/consolidation) - Given the overbought conditions on shorter timeframes and the current Asian session, a short-term pullback or consolidation is plausible. This bias would be reinforced if the market interprets the FOMC outcome as less dovish than currently priced, or if pre-event profit-taking accelerates.
• Trigger/Entry: Sell Limit at 1.16670 (±3 pips), expecting a rejection from recent highs. This entry targets potential exhaustion of the current bullish run, allowing for a scalp if momentum falters.
• Stop-Loss: 1.16720. This stop-loss is placed just above the recent H1 high, defining the risk for a short-term reversal.
• Profit Targets:
  • Target 1: 1.16550 - This level aligns with intraday support, representing a reasonable target for a short-term correction.
  • Target 2: 1.16400 - This target is near the H4 EMA confluence, which would be tested if the pullback gains more traction.
• Session Context: This scenario could unfold during the low-liquidity Asian session or early London if bullish momentum fails to sustain. Any pre-FOMC profit-taking could exacerbate this pullback, especially if market participants decide to reduce exposure before the high-impact events.

Risk Management & Catalyst Analysis

Trade Risk Assessment

The current market environment for EUR/USD carries a medium confluence quality. While H4 and H1 timeframes show strong bullish alignment, the D1 chart is in a transitional phase, and shorter-term oscillators are significantly overbought. The most significant risk factor is the cluster of high-impact USD and EUR events scheduled for tomorrow and Wednesday. The US Federal Reserve's monetary policy announcement, FOMC Statement, and Press Conference on October 29th, followed by the ECB's Main Refinancing Rate decision and Press Conference on October 30th, carry substantial market-moving potential. Within 4 hours of these events, technical signals may be overridden by fundamental shocks. The current Asian session typically experiences lower liquidity, which can lead to choppier price action and makes stops more susceptible to spikes. Overbought conditions on shorter timeframes suggest that any long positions taken near current levels carry increased risk of a sharp pullback. Any positions held into tomorrow's FOMC events should have their size reduced by 50% due to the high volatility and unpredictable market reaction expected.

Economic Calendar & Event Impact

The upcoming economic calendar features several high-impact events that will significantly influence EUR/USD:

• US Richmond Manufacturing Index (Today, 14:00 UTC): Forecast -11, Previous -17 - Medium impact. Provides insight into regional manufacturing health, potentially influencing USD sentiment.
• US CB Consumer Confidence (Today, 14:00 UTC): Forecast 93.4, Previous 94.2 - Medium impact. A decline could reinforce the Fed's dovish stance, supporting EUR/USD.
• US Pending Home Sales m/m (Tomorrow, 14:00 UTC): Forecast 1.7%, Previous 4.0% - Medium impact. Housing market data, contributes to overall economic outlook for the Fed.
• US Federal Funds Rate (Tomorrow, 18:00 UTC): Forecast 4.00%, Previous 4.25% - High impact. The expected rate cut is a major catalyst for USD weakness and EUR/USD upside.
• US FOMC Statement (Tomorrow, 18:00 UTC): High impact. The language and tone of the statement will be scrutinized for clues on future monetary policy direction.
• US FOMC Press Conference (Tomorrow, 18:30 UTC): High impact. Fed Chair's commentary will provide critical forward guidance, driving significant volatility.
• GE Prelim CPI m/m (October 30, 07:29 UTC): Forecast 0.2%, Previous 0.2% - Medium impact. Key German inflation data, influencing ECB policy expectations.
• GE Prelim GDP q/q (October 30, 09:00 UTC): Forecast 0.0%, Previous -0.1% - Medium impact. German economic health, potential confirmation of recession, impacting Euro sentiment.
• EZ Main Refinancing Rate (October 30, 13:15 UTC): Forecast 2.15%, Previous 2.15% - High impact. Expected hold, but any deviation or hint of future action will be crucial for the Euro.
• EZ Monetary Policy Statement (October 30, 13:15 UTC): High impact. Details of ECB's assessment of economic conditions and policy stance.
• EZ ECB Press Conference (October 30, 13:45 UTC): High impact. ECB President Christine Lagarde's remarks will be vital for Euro direction, particularly regarding growth and inflation outlook.
• EZ Core CPI Flash Estimate y/y (October 31, 10:00 UTC): Forecast 2.3%, Previous 2.3% - Medium impact. Core inflation measure, directly impacting the ECB's price stability mandate.
• EZ CPI Flash Estimate y/y (October 31, 10:00 UTC): Forecast 2.1%, Previous 2.2% - Medium impact. Headline inflation data for the Eurozone.

Synthesized Market Outlook

The EUR/USD maintains a strong bullish bias, underpinned by a confluence of technical momentum and significant fundamental drivers. The market's firm expectation of a Federal Reserve interest rate cut tomorrow, coupled with broad US Dollar weakness and improving global risk sentiment, provides a robust fundamental foundation for further upside. Technically, the pair's sustained trading above key moving averages on H4 and H1 timeframes confirms this bullish conviction, with the D1 chart showing signs of recovery. However, overbought conditions on shorter timeframes suggest that some consolidation or a minor pullback to support levels, such as the 1.16500 psychological mark, is plausible before a renewed push higher.

The upcoming FOMC and ECB monetary policy decisions are the defining catalysts for the week. A dovish Fed outcome, particularly if accompanied by forward guidance signaling further easing, will likely reinforce EUR/USD's upward trajectory, targeting 1.17000 and beyond. Conversely, any unexpected hawkishness from the Fed or a surprisingly pessimistic tone from the ECB could trigger a more significant pullback, testing the H4 EMA confluence around 1.16300-1.16340. Traders should monitor the 1.16610 (H4 EMA200) level closely for sustained bullish momentum and be prepared for heightened volatility around the central bank announcements. The current policy divergence between an easing Fed and a stable ECB is a powerful thematic driver favoring EUR/USD strength, making this week's events crucial for confirming this outlook.