The EUR/USD exchange rate has shown renewed volatility in recent sessions as traders weigh incoming macroeconomic data from the United States against the highly anticipated European Central Bank (ECB) interest rate decision. 

With markets adjusting expectations for the Federal Reserve (Fed) and monitoring the euro area’s inflation trajectory, the world’s most traded currency pair could be setting up for a bullish continuation pattern. In this article, Fletrade brokers thoroughly examine the key aspects of the topic.

ECB Decision and US Inflation Data

The EUR/USD exchange rate briefly pulled back after the latest release from the Bureau of Labor Statistics (BLS) showed that US wholesale prices retreated in August. Specifically, the Producer Price Index (PPI) declined, reinforcing the view that inflationary pressures are gradually cooling in the American economy.

• The headline PPI fell from 3.1% in August to 2.6% in September, signaling a clear disinflationary trend.
• The core PPI, which excludes volatile items like food and energy, declined from 3.4% to 2.8%.

Although these readings remain above the Fed’s 2.0% inflation target, the downward momentum provides some comfort to policymakers. The moderation in PPI has raised hopes that the upcoming Consumer Price Index (CPI) report will also reveal slower price growth. 

Consensus forecasts suggest that core CPI will stay flat at 3.1%, while the headline CPI could edge higher from 2.7% to 2.9%.

This moderation in US inflation data has reinforced expectations of a Fed interest rate cut in the near term. Coupled with the deterioration in labor market conditions, where just 22,000 jobs were created in August and the unemployment rate rose to 4.3%, markets are now pricing in a 25-basis point cut, with some institutions such as ING and Standard Chartered projecting a more aggressive 50-basis point reduction.

The ECB’s Policy Stance

While the Fed faces pressure to ease monetary policy, the ECB is at a different stage of its policy cycle. After a series of cuts in previous months, the ECB is now expected to hold rates steady at 2.0%.

The bank has achieved a measure of success in steering eurozone inflation back toward its 2% target, giving policymakers room to pause. However, the ECB’s cautious tone is expected to emphasize vigilance against potential risks, including energy-driven inflation spikes and slowing global trade.

Technical Analysis of EUR/USD

From a technical analysis perspective, the EUR/USD pair has staged a strong rally in 2025, rising from 1.0185 in January to the current level of 1.1698. Several key indicators suggest that bullish momentum remains intact:

• Moving Averages: The pair has climbed above the 50-day and 100-day Exponential Moving Averages (EMA), confirming that buyers dominate price action. This crossover is often seen as a bullish confirmation, particularly when accompanied by strong volume.
• Inverse Head and Shoulders Pattern: On the daily timeframe, the currency pair has formed a clear inverse head and shoulders pattern. This classic reversal setup is nearing completion, with the neckline resistance located at 1.1828. A breakout above this level would likely accelerate buying pressure.
• Psychological Resistance Levels: Traders are closely watching the 1.2000 psychological level, which represents both a technical target and a sentiment-driven barrier. If momentum persists, reaching this level in the medium term is highly plausible.
• Momentum Indicators: Oscillators such as the Relative Strength Index (RSI) remain supportive of further gains. Although the RSI has not yet reached overbought territory, its steady climb indicates persistent buying interest.

Key Market Drivers Ahead

The short-term outlook for EUR/USD will hinge on two primary catalysts:

• Federal Reserve Meeting: The Fed’s decision on whether to implement a 25-basis point or 50-basis point rate cut will be crucial. A dovish shift would weaken the US dollar further, fueling euro strength.
• ECB Communication: While the ECB is widely expected to hold rates steady, any hawkish language stressing inflation vigilance could add additional support for the euro. Conversely, hints at future easing could temporarily cap upside potential.

Beyond these immediate events, traders will also monitor energy prices, geopolitical risks, and ongoing discussions around the US’s tariffs, which continue to shape market sentiment and global trade dynamics.

Conclusion

The EUR/USD forex signal points to a bullish outlook ahead of the ECB decision, driven by both technical and fundamental factors. With US inflation moderating, labor market data softening, and expectations of Fed rate cuts growing, the US dollar appears vulnerable to further downside. At the same time, the ECB’s steady stance provides relative support for the euro.

Technically, the breakout potential above 1.1828 and the medium-term target at 1.2000 highlight the strength of the ongoing trend. For traders, the divergence between the Federal Reserve’s easing bias and the ECB’s pause offers a compelling setup for euro appreciation against the greenback in the weeks ahead.