Can EUR/USD Break Above 1.1625 as Dollar Weakness Persists?

The EUR/USD pair is riding a four-day winning streak, trading firmly above the 1.1600 handle during Asian hours on Thursday. But the real question for traders is whether this momentum can sustain, particularly with the 200-day simple moving average sitting just above at 1.1625 as the next technical hurdle.

Fed Rate Cut Expectations Fueling Dollar Retreat

The weakening US Dollar remains the primary driver behind EUR/USD’s upward trajectory. Markets are currently pricing in an 85% probability that the Federal Reserve will cut rates again in December, a shift bolstered by recent commentary from various Fed officials. This dovish sentiment has pushed the USD Index to a fresh one-week low, as investors reassess the appeal of the traditionally safe-haven dollar.

Economic data released this week hasn’t changed the narrative much. Mixed signals from the US economy continue to reinforce expectations of looser monetary policy, which naturally works against dollar strength and acts as a tailwind for the EUR/USD pair.

ECB’s Cautious Stance Supporting the Euro

On the flip side, the Euro is drawing support from a cautious European Central Bank. ECB Vice President Luis de Guindos struck a slightly more upbeat tone on eurozone growth this week, suggesting that current rate levels are appropriately calibrated. This measured approach indicates the ECB has little urgency to adjust policy in the near term.

Croatian central bank chief Boris Vujcic reinforced this message, stating that rate cuts should only resume if inflation slides below the 2% target without signs of rebound. Meanwhile, ECB Chief Economist Philip Lane emphasized the need for slower non-energy inflation to maintain price stability.

Consensus among economists is clear: the ECB is likely to hold its deposit rate through year-end, with minimal changes expected into next year. This policy divergence—dovish Fed versus steady ECB—naturally favors EUR/USD bulls.

Technical Setup Points Higher, With Caveats

From a technical perspective, the path of least resistance for EUR/USD appears to be upward. However, traders should exercise patience and wait for a decisive break above the 200-day SMA barrier near 1.1625 before committing to fresh longs. Sustained strength beyond this level would provide stronger confirmation of the bull case.

One caveat: Thanksgiving holiday in the US is keeping trading volumes relatively thin this week, adding an extra layer of uncertainty to major moves. Bullish traders should remain alert to potential whipsaw moves on lower liquidity.

Currency Performance Snapshot

The USD Index showed broad weakness this week, declining 0.83% against the Euro while weakening 1.17% against both the British Pound and the Canadian Dollar. The Japanese Yen emerged as the strongest performer among major currencies. EUR strength was particularly notable, gaining ground against almost all major counterparts including a 0.35% advance against the Pound and a 1.17% move against the Aussie.

For now, EUR/USD momentum remains intact, but traders watching the 200-day SMA will be key to determining whether this rally has more legs or faces resistance at current technical levels.