EUR/USD Outlook: Bearish Momentum Holds as ECB Stays Steady and Fed Remains Cautious
Original Author: Yohay Elam
Source: Forex Crunch (Published on October 31, 2025)
The EUR/USD currency pair remains under pressure, continuing its bearish trend amid a complex macroeconomic environment. The euro has been struggling to gain traction, largely due to diverging monetary policy stances between the European Central Bank (ECB) and the U.S. Federal Reserve. While both central banks have expressed caution, the nuances of their respective positions are significantly shaping market sentiment and price action in the currency market.
Current Technical Setup and Market Sentiment
The EUR/USD pair is hovering around key support levels and is struggling to stage any meaningful recovery. After dropping below the 1.0600 psychological level earlier in October, the pair has failed to gather bullish momentum and is instead drifting toward previous lows.
Key technical highlights include:
– The 1.0500 region serves as short-term support, though pressure remains toward testing 2023 and early 2024 lows near 1.0450.
– The 50-day moving average is sloping downward, reinforcing the bearish outlook.
– RSI indicators on the daily chart remain in neutral to slightly bearish territory, suggesting limited buying pressure.
– A break below 1.0450 could open the door to a deeper move toward parity, though that remains a medium-term risk.
From a sentiment perspective, traders are biased to sell on rallies due to the lack of confidence in the eurozone’s economic recovery and persistent strength in U.S. data. The market continues to price in the idea that the Federal Reserve is in a stronger position than the ECB when it comes to tackling inflation while sustaining growth.
Diverging Central Bank Policies
The core driver behind the downside pressure on the euro lies in the divergent policy approaches between the ECB and the Fed. Although both institutions have paused rate hikes in recent monetary policy meetings, the underlying tone and economic indicators suggest different paths forward.
European Central Bank (ECB):
– The ECB has maintained a gradual and cautious approach to tightening policy, recently opting to hold its benchmark interest rates steady.
– Inflation in the eurozone is moderating, with headline inflation falling closer to the ECB’s 2 percent target.
– Core inflation remains somewhat sticky, but policymakers are more concerned about the downside risks to growth.
– The ECB faces an economic landscape characterized by stagnant growth, particularly in Germany, the bloc’s largest economy.
– Forward guidance from President Christine Lagarde suggests that rate cuts are not imminent, but the bar for further hikes is high.
Federal Reserve:
– The Fed, led by Chair Jerome Powell, has also paused rate increases, but its communication reflects a readiness to tighten further if inflation re-accelerates.
– U.S. economic data has remained robust: GDP growth remains positive, job market metrics are resilient, and inflation, though cooled from 2023 highs, still exceeds the Fed’s comfort zone.
– The Fed’s dual mandate of full employment and stable prices allows it to maintain flexibility in policy without the same constraints faced by the ECB.
– Markets are pricing in the possibility of at least one more hike in 2026 if inflation shows signs of persistence or rebounds unexpectedly.
Impact of Economic Indicators
Economic data releases from both blocs have had a clear impact on EUR/USD price action. The differences in economic health are tangible and continue to favor the dollar.
U.S. Economic Strength:
– The third quarter of 2025 saw U.S. GDP expand by 2.1 percent annually, better than forecast.
– Nonfarm payrolls remain strong, with unemployment steady around 3.7 percent.
– Consumer spending is resilient, although slightly weakened from earlier peaks.
– Inflation data, particularly core PCE, shows gradual improvement but remains sticky near 3.2 percent.
Eurozone Weakness:
– Euro Area GDP flatlined in the third quarter, with Germany experiencing minimal growth,
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