EUR/USD Forecast – Fed Pivot and Eurozone Stability Signal Breakout Toward 1.22

EUR/USD is trading near 1.1640 after giving up earlier gains during Friday’s session. In my view, this backdrop sets the stage for a potential breakout toward 1.22 over the coming weeks. Below, I present the macroeconomic shifts, policy divergence, and technical signals that support the bullish outlook for EUR/USD.

Macro Shifts Set Bullish Tone for EUR/USD

EUR/USD erased most of its weekly gains on Friday and now trades flat near 1.1640. The pair remains steady ahead of the Federal Reserve’s meeting on December 10. Markets are pricing in an 86.2% chance of a quarter-point rate cut, with expectations of up to three more cuts in 2026. These policy expectations weaken the U.S. dollar and support the euro.

Weak U.S. Jobs Data and Fed Pivot Pressure the Dollar

The U.S. economic data has turned mixed. The ADP National Employment report showed a loss of 32,000 jobs in November. Additionally, the 3-month average turned negative for the first time since August 2020, reinforcing the case for rate cuts.

The chart below shows that Initial Jobless Claims dropped to 191,000, marking the lowest level in three years. This decline is likely due to seasonal distortion related to the Thanksgiving holiday.

On the other hand, the core PCE price index, the Fed’s preferred inflation gauge, rose by 0.2% in September, in line with previous months. Year-on-year inflation slowed to 2.8%, which remains above target but appears stable. This stability gives the Fed more room to pivot toward easing without triggering fears of runaway inflation.

Moreover, political developments are also weighing on the dollar. Reports suggest that Kevin Hassett may replace Jerome Powell as Fed Chair. Bond investors are concerned that Hassett could pursue aggressive easing, which may push yields higher as inflation risks increase.

Stronger Eurozone Growth and Jobs Support Euro Recovery

On the other hand, the Eurozone macro picture is improving modestly. The chart below shows that Q3 GDP growth was revised up to 0.3% from 0.2%, beating earlier estimates and the previous quarter’s 0.1% expansion. Employment also increased, rising 0.2% quarter-on-quarter and 0.6% year-over-year. Although the euro’s reaction was muted, the data reflect steady resilience in the euro area.

However, not all Eurozone data was supportive. October retail sales posted 0% growth, missing expectations. The upbeat manufacturing data earlier in the week and stable employment figures helped offset this weakness. On balance, Eurozone fundamentals appear to be stabilising while the U.S. outlook continues to deteriorate.

In summary, macro drivers currently favour a bullish bias for EUR/USD. A dovish Fed, soft US job data, and relative eurozone strength all point toward potential upside in the pair over the coming weeks.

EUR/USD Technical Setup: Compression Pattern Hints at Breakout

EUR/USD closed the week at 1.1641 after a substantial correction on Friday. Despite the intraday pullback, the broader trend remains constructive. The price action over the past few months has formed a compression zone just below the 1.1740 resistance. This compression zone suggests a possible breakout in the coming weeks.

The weekly chart below shows a clear bottom in 2023 and early 2025, with the rally in EUR/USD triggering a constructive development throughout 2025. The pair reached resistance near 1.191 and entered a compression pattern marked by lower highs and higher lows.

This coiling structure suggests a potential impulsive move ahead, with the key level at 1.1740. The key support rests in the 1.146 to 1.148 region. This compression pattern is also viewed as a bull flag pattern when measured from the 2025 lows.

The daily chart for EUR/USD shows that the pair formed a rounding bottom in early 2025, before starting a strong rally for the remainder of the year. The breakout from 1.05 triggered a sharp surge, pushing the pair up to the 1.12 level.

A subsequent breakout above 1.12 has firmly established a strong bullish trend. The pair is currently trading above the 50-day and 200-day SMAs, reinforcing the bullish bias. The RSI is now approaching the 60 level, which signals rising momentum.

A weekly close above 1.1740 would confirm a breakout from the compression pattern and signal a continuation of the uptrend toward the January 2021 highs near the 1.22 level. On the other hand, any sustained move below the 1.12 region would invalidate the bullish setup and expose the 1.10 zone next.

Overall, the EUR/USD technical setup remains constructive as long as key support levels hold. The price compression near resistance signals an increasing breakout risk, with momentum and structure favoring further upside.

Related Market Signals Strengthen Bullish EUR/USD Case

US Dollar Index Struggles Below 100 as Momentum Fades

The U.S. dollar index is consolidating within a long-term support zone, signaling underlying weakness. The chart below shows that the index has been trading within an ascending channel pattern since the 2011 lows. After rejecting the 109 level, the dollar Index reversed sharply and is now consolidating near the 96–99 support zone.

This zone aligns with the lower boundary of the channel, and a sustained break below it could expose the next downside target near 90. The bounce from the long-term support of 96 remains weak, and price action suggests a shift in long-term momentum. The dollar’s technical weakness reinforces the bullish outlook for EUR/USD, which is also supported by expectations of a dovish Fed path next week.

USD/CHF Breakdown Confirms Broader Dollar Weakness

USD/CHF is trading around 0.8045 after a significant decline from the 0.92 resistance area. The pair has formed a clear broadening wedge over the past two years, with lower highs repeatedly rejected near the same level. The pair is now hovering inside a decision zone, with 0.7830 marking a recent low.

The breakdown from this decision zone could trigger a strong move lower, confirming bearish momentum. The chart reflects broader dollar softness and serves as confirmation of EUR/USD strength in a cross-pair context. As long as USD/CHF holds below the resistance level, the bias remains bearish for the dollar and supportive for the euro.

The US dollar index and USD/CHF support the case for continued upside in EUR/USD. The dollar index is breaking down from its long-term channel, while USD/CHF confirms bearish pressure within a well-defined technical structure. These cross-market signals align with the view that the EUR/USD remains positioned for further gains if 1.1740 is overcome.

In Closing

The base case for EUR/USD remains bullish into the first quarter of 2026. A combination of Fed easing expectations, mixed U.S. labour data, and improving Eurozone fundamentals supports continued euro strength. As long as the pair holds above the 1.12 support region, the technical structure favours a move toward the 1.22 area.

A weekly close above 1.1740 would confirm a breakout from the ongoing compression pattern and align with cross-market signals from the US dollar index and USD/CHF. However, a sustained drop below 1.12 would challenge this view and open the door to a retest of 1.10. For now, both macro drivers and momentum suggest that the path of least resistance remains higher.