EUR/USD Forecast: Fed Signals Rate Hike Risk as Euro Tests 1.1514

Nine members of the Federal Open Market Committee voted to keep borrowing costs unchanged within the 3.50%–3.75% range. However, Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack and Minneapolis Fed President Neel Kashkari supported an immediate 25-basis-point rate increase. This marked the first time since 2016 that several policymakers expressed a different view at the same meeting.

The accompanying statement stressed that economic activity continued to expand at a solid pace despite elevated uncertainty, partly caused by the escalation of the Middle East conflict. Inflation also remained above the Federal Reserve’s 2.0% target. According to Fed Chair Kevin Warsh, there is no such thing as a “soft” inflation target, meaning policymakers will “act without hesitation” to reduce price pressures. Warsh once again refrained from providing forward guidance, maintaining his position that the central bank should not predetermine its response to incoming macroeconomic data. According to the Fed chair, investors have begun adapting to this approach, potentially marking the beginning of a “new era” to which all market participants will eventually have to adjust.

Markets responded with a sharp increase in long-term government bond yields and revised their expectations for the Federal Reserve’s next steps. According to the CME FedWatch Tool, 63.2% of market participants now expect borrowing costs to rise at the September meeting. Meanwhile, the European Central Bank also left its key monetary policy parameters unchanged on July 23. The deposit facility rate remained at 2.25%, the main refinancing operations rate at 2.40%, and the marginal lending facility rate at 2.65%.

ECB President Christine Lagarde confirmed that the regulator continues to follow a data-dependent and meeting-by-meeting approach, leaving the door open to a possible rate increase in September. Markets have already fully priced in the first such move by October and a second increase by March 2027. Investors are also focused on preliminary gross domestic product data. In the European Union, second-quarter GDP increased from –0.2% to 0.4%, exceeding the preliminary forecast of 0.2%. Annual growth accelerated from 0.3% to 1.0%, compared with expectations of 0.5%.

In Germany, the eurozone’s largest economy, quarterly GDP growth slowed from 0.3% to 0.2%, while annual growth accelerated from 0.4% to 0.9%, compared with forecasts of 0.1% and 0.6%, respectively. The positive performance was supported by a significant increase in investment in artificial intelligence technologies and higher government spending, which partly offset the negative impact of rising energy prices.

Support and Resistance Levels

From a technical perspective, EUR/USD remains within a descending channel near 1.1535. The key level for buyers is 1.1596, the Murrey [6/8] level. A breakout above this mark could push the pair through the upper boundary of the channel and open the way toward 1.1718, the Murrey [8/8] level, 1.1840, the Murrey [+2/8] level, and 1.1962, the weekly Murrey [+1/8] level.

Sellers are targeting 1.1352, the Murrey [2/8] level and the lower boundary of the Bollinger Bands. A breakdown below this mark could accelerate the decline toward 1.1230, the Murrey [0/8] level, 1.1108, the Murrey [–2/8] level, and 1.0986, the weekly Murrey [5/8] level.

Technical indicators are providing mixed signals. The Bollinger Bands are moving higher, and the MACD histogram is preparing to enter positive territory. However, the Stochastic Oscillator has reached the overbought zone and may soon reverse lower.

Resistance levels: 1.1596, 1.1718, 1.1840, 1.1962.

Support levels: 1.1352, 1.1230, 1.1108, 1.0986.

EUR/USD Trading Scenarios and Price Forecast

Long positions may be opened above 1.1596 with targets at 1.1718, 1.1840 and 1.1962. Stop-loss: 1.1500. Estimated implementation period: 5–7 days.

Short positions may be opened below 1.1352 with targets at 1.1230, 1.1108 and 1.0986. Stop-loss: 1.1440.