EUR/USD Analysis – 16 September 2025
Original article by: Mahmoud Abdallah, DailyForex.com
The EUR/USD currency pair has experienced volatility in recent sessions, driven by shifting expectations surrounding interest rate policies from both the Federal Reserve and the European Central Bank (ECB), along with broader market sentiment amidst economic data points and geopolitical developments. On September 16, 2025, the pair struggles to maintain upward momentum, bottoming around 1.0655 before slightly rebounding toward the 1.0700 level at the time of analysis.
This in-depth analysis explores the key technical levels, macroeconomic influences, central bank policy implications, and trading expectations currently shaping the EUR/USD market.
Overview of EUR/USD Price Trends
– The EUR/USD formed a short-term bottom at 1.0655, a level that has acted as a critical support zone since early September.
– Attempts at recovery have been muted as the market awaits clarity surrounding central bank intentions.
– The currency pair remains vulnerable to fluctuations driven by bond yields, inflation figures, and the perceived trajectory of monetary tightening or easing.
– A sustained break below 1.0650 could open the door toward the 1.0600 psychological level.
– On the upside, only a firm close above 1.0800 or 1.0835 would suggest the resumption of bullish momentum.
Fundamental Influences
Several fundamental themes are strongly influencing EUR/USD performance:
1. US Federal Reserve Policy Outlook:
– The Federal Reserve’s monetary policy path continues to be a major driver.
– While some US economic indicators (e.g., Non-Farm Payrolls, CPI inflation) have shown a slight cooling in recent months, the Fed has not veered from its cautious tone.
– Market participants are divided over whether the Fed has reached the peak of the tightening cycle or whether one more rate hike may be warranted before year-end 2025.
– The Fed’s long-standing “higher for longer” narrative bolsters the US dollar by keeping Treasury yields elevated, thus putting downward pressure on EUR/USD.
2. ECB Monetary Policy Dilemma:
– The ECB finds itself in a challenging position. Inflation within the eurozone has softened in select member states, but remains above the central bank’s 2% target in key economies like Germany and Spain.
– Economic activity continues to weaken according to PMI surveys, raising concerns that continued monetary tightening may push the eurozone into a recession.
– Despite these growth concerns, the ECB continues to project hawkishness to contain inflation expectations.
– The September 2025 ECB policy meeting resulted in an interest rate hike, but a more cautious tone was adopted in the accompanying commentary.
3. Interest Rate Differentials Favor the Dollar:
– The euro remains pressured by the growing divergence in monetary policy and economic strength between the US and the eurozone.
– With US bond yields providing attractive returns to investors, capital continues to favor dollar-denominated assets.
– The 10-year US Treasury yield holding above 4.5% has become a key anchor for the dollar across the board, including against the euro.
4. Macroeconomic Data Releases:
– Recently released US inflation data for August 2025 showed headline CPI increasing more than expected, reigniting fears that the battle against inflation is not yet over.
– Retail sales in the US also came in stronger than forecast, implying that US consumer demand remains resilient.
– In contrast, the eurozone’s industrial production contracted again, while consumer sentiment has weakened further.
– The data divergence further validates the strength of the dollar.
Technical Analysis – Key Levels and Patterns
The technical picture for EUR/USD remains aligned with a bearish-to-neutral short-term outlook, given the inability of bulls to regain control at important resistance levels.
Support Levels:
– 1.0650: Strong support formed through historical price consolidation; a break below could invite
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