EUR/USD Forex Signal: Bullish Bias Strengthens as Fed–ECB Policies Diverge
GlobePRwire
The EUR/USD exchange rate has shown a strong recovery, climbing to 1.1740, its highest level since October 1, signaling renewed bullish momentum in the forex market. This surge comes as investors increasingly anticipate a potential policy divergence between the Federal Reserve (Fed) and the European Central Bank (ECB). The LFtrade team presents a structured and informative breakdown of this matter.
ECB and Federal Reserve Divergence
The recent EUR/USD rally is largely driven by expectations that the Fed and ECB will adopt divergent interest rate policies in the near term. In its latest interest rate decision, the Federal Reserve cut the federal funds rate by 0.25%, signaling a cautious approach toward monetary tightening.
Officials suggested the likelihood of one additional rate cut next year, though many market analysts anticipate more aggressive reductions, especially if a new Fed chair replaces Jerome Powell, potentially favoring rate cuts to stimulate the economy.
However, any policy shift at the Fed will depend on FOMC consensus, as some members have begun dissenting, signaling that further cuts are not guaranteed.
In contrast, the ECB is projected to take a more hawkish stance later in 2025, with analysts expecting interest rate hikes as inflation dynamics evolve in the Eurozone. This divergence between the US and Eurozone monetary policies is a primary driver for the EUR/USD bullish trend, as traders adjust positions based on central bank guidance.
Key Macroeconomic Events Ahead
The EUR/USD pair is poised to react to several macro events this week that will shape market sentiment. European Union Economic Data: Key releases, including inflation figures and flash manufacturing and services PMI for November, will provide insights into the Eurozone's economic health.
European Central Bank Announcement: The ECB will deliver its final policy decision of the year on Friday. Economists expect the bank to maintain current interest rates but hint at a potential rate hike in the final quarter of 2025, reinforcing EUR bullish sentiment.
US Economic Indicators: The Bureau of Labor Statistics (BLS) will publish non-farm payroll (NFP) data on Tuesday. Analysts forecast the economy added 55,000 jobs in October, keeping the unemployment rate steady at 4.4%. On Friday, the US will release the latest inflation report, a key input for determining future Fed policy.
These events highlight the sensitivity of EUR/USD movements to both fundamental data and central bank guidance, making it crucial for traders to monitor economic releases closely.
EUR/USD Technical Analysis
From a technical standpoint, the daily chart of EUR/USD illustrates a strong uptrend over the past few months. Key observations include a classic Inverse Head-and-Shoulders Pattern, signaling further upside potential after the November low of 1.1463.
The pair has also crossed above the 50-Day Exponential Moving Average (EMA), indicating that short- to medium-term momentum is strengthening. The Supertrend Indicator has confirmed the uptrend, reinforcing bullish sentiment.
Additionally, the Average Directional Index (ADX) has risen to 18, its highest level since November 6, suggesting a strengthening trend and that buyers are gaining control.
Based on this technical setup, the most likely scenario is a continuation of the bullish trend, with EUR/USD bulls targeting the year-to-date high of 1.1912. However, a drop below the 50-day EMA at 1.1625 would invalidate the bullish outlook, signaling a potential trend reversal.
Market Outlook and Trading Strategy
The combination of fundamental and technical factors points to a bullish EUR/USD outlook in the near term. Traders should consider several key factors. Monitoring ECB vs. Fed signals is crucial, as the divergence in monetary policy remains a primary driver of EUR/USD bullish sentiment, with any changes in interest rate guidance potentially amplifying volatility.
Watching key economic releases, including inflation data, PMI reports, and non-farm payrolls, may trigger short-term price swings, creating trading opportunities.
From a technical risk management perspective, support at the 50-day EMA (1.1625) should be closely watched, with stop-loss orders considered below this level to guard against trend reversals. The upside target lies near the 1.1912 year-to-date high, serving as a potential profit-taking zone for long positions.
Conclusion
The EUR/USD Forex signal remains bullish, underpinned by the growing policy divergence between the Fed and ECB. Technical indicators, including the inverse head-and-shoulders pattern, 50-day EMA crossover, and rising ADX, reinforce the uptrend.
Coupled with anticipated macro releases from both the US and Eurozone, the EUR/USD pair is likely to remain well-supported in the near term, with resistance levels providing clear targets for traders.
Overall, EUR/USD traders should stay alert to central bank decisions, economic data, and trend confirmation signals, as these factors will continue to shape market direction heading into the final weeks of the year.