A complex equation: Why has the EUR/USD currency pair remained hostage to fragile monetary balance?

At the heart of the conflict between the policies of the European Central Bank and the Federal Reserve, the USD/EUR exchange rate finds itself confined within a narrow range, reflecting more than just price movements; it embodies the structural crisis gnawing at the European economy on one side, and concerns over American financial fragility on the other. Since the start of Q4 of this year, the price has moved between support levels near 1.1550 and resistance around 1.17, with any slight drift governed by monetary decisions from either side or economic data.

The Race Toward Easing: Who Moves First?

The clear divide between the positions of the two central banks explains much of the euro’s current weakness. As markets prepare to price in the possibility of a US rate cut in December, its European counterpart appears more cautious, despite clear signs of slowdown in the Eurozone.

Last October, the European Central Bank kept rates unchanged for the third consecutive time, reaffirming that the current level is “appropriate” to combat inflation, which remains at 2.6%, above the target by 0.6 points. However, it left the door open for a possible cut if industrial weakness persists, especially in Germany and France.

On the US side, indicators tell a different story. GDP grew by 2.1% in the first half of this year, maintaining dollar momentum. Unemployment fell to around 4%, while inflation (as measured by the Personal Consumption Expenditures Price Index) remains at 2.9% in August.

This divergence directly translates into yield spreads: US bonds at 4% versus European bonds at 3.25%, a gap that keeps the euro under continuous pressure unless the European economy undergoes a fundamental turnaround.

European Weakness: Who Is Responsible?

The picture facing the Eurozone is darker than the numbers suggest. Germany, the engine of the European economy, recorded a 0.3% decline in industrial production in September. PMI indicators in manufacturing and services sectors have contracted below 50 points for four consecutive months, a clear sign of economic contraction.

France’s situation is no better: unemployment remains near 7.5%, and retail sales are declining. Purchasing power has eroded due to rising prices and sustained high interest rates.

Above all, natural gas prices have begun rising again this fall, by nearly 12% in October. This is not a marginal news item: it means increased pressure on heavy and chemical industries, potentially adding 0.3 to 0.4 percentage points to inflation by year’s end.

Beyond the Numbers: Geopolitical Factors

Currencies do not exist in a vacuum. The Russia-Ukraine war, despite fading media attention, remains a continuous burden on European budgets. Governments increased their defense spending by an average of 7%, shifting resources from productive investment to military.

Meanwhile, US debt has surpassed $34 trillion, but the dollar remains the safe haven. Every geopolitical tension drives investors back into the dollar’s arms, and the European currency bears the brunt. A clear example: in October, when tensions in the Black Sea escalated, the dollar index rose by 1.2% in just one week, while the euro plunged to its lowest in three weeks at 1.1570.

Technical Outlook: Caution and Vigilance

From a technical analysis perspective, the price is moving within a consolidation range between 1.1550 and 1.1700, lacking real momentum. The RSI hovers around 40, indicating no strong trend. The MACD shows a weak bearish crossover.

Key supports are at 1.1367 and 1.1186, with resistances at 1.1711 and 1.1913. Notably, speculative positions on the euro decreased by 12% in October, indicating growing investor pessimism. However, investor confidence data from “Sentix” in November showed a slight improvement after four months of collapse.

Three Scenarios Awaiting the December Meeting

The European Central Bank will hold its final meeting on December 12. Futures price in a 35% chance of rate cuts versus a 65% chance of holding steady.

Scenario 1: Early Easing by Europe
If the ECB cuts rates by 25 basis points before the Fed, the euro will face immediate pressure. US yields will become more attractive, and EUR/USD could dip toward 1.14 briefly before a potential rebound in early 2026.

Scenario 2: Hold with Easing Signals
Keeping rates at 4% with hints of a cut in Q1 2026 could give the euro some breathing room. The price might gradually rise toward 1.17, especially if US weakness or Fed signals point to slowdown.

Scenario 3: Persistence in Tightening
If the ECB insists on no change until mid-2026, it will support the euro momentarily but deepen the crisis in southern countries and increase regional weakness overall.

When Analysis Meets Reality

The fundamental paradox here is simple: the US faces slowdown but retains currency strength. Europe suffers from weakness but sticks to cautious policies. This contradictory balance may persist until the end of the year, as long as there is no real energy breakthrough in Europe or fiscal consensus in Washington.

The 1.15-1.18 range will remain the solid ground until year-end, with surprise news exerting a stronger influence than traditional data. The key question is not where the price will go, but which economy will lose market confidence first: if the US shows clear recession signals, the dollar will weaken. If European industrial weakness continues, the euro will be the biggest loser.

Ultimately, this currency pair is not just a technical indicator but a thermometer of global financial sentiment: market optimism lifts the euro, while fear restores the dollar to dominance. Between these two poles, the game of balance continues.