EUR/USD Weekly Forecast: US Dollar Strength Pushes the Euro to a Two-Month Low

EUR/USD Price Action: A Third Straight Weekly Decline The single currency has stayed on the defensive for a third week running, with EUR/USD challenging the 1.1360 region for the first time since late July. The pair posted gains on only one session this week, reversing two consecutive monthly advances and giving away nearly 4 cents since topping just past 1.1700 in August. The pullback in the Euro to US Dollar exchange rate has coincided almost exactly with a marked recovery in the US Dollar, rather than any fresh deterioration in Eurozone fundamentals. Why the US Dollar Is Gaining Strength The Greenback has found renewed support on expectations of further monetary tightening by the Federal Reserve through the second half of the year. That view has gathered momentum since the latest FOMC meeting, reinforced by hawkish commentary from Fed officials who continue to flag inflation as the priority issue. Geopolitical Risk Keeps Safe-Haven Demand Alive On the geopolitical front, the ongoing US-Iran-Hormuz standoff remains unresolved, with no diplomatic breakthrough in sight. Fresh concerns involving Russia have added to the uncertainty, fuelling a flight-to-safety mood that continues to support demand for the US Dollar as the primary safe-haven currency. Rising Energy Prices Fuel Eurozone Inflation Concerns Crude Oil prices have climbed sharply, with European pump prices extending their uptrend and gas price forecasts being revised upward on a near-weekly basis. As a major energy importer, the Eurozone remains exposed to these swings, keeping inflation risks alive and reigniting speculation about additional European Central Bank rate hikes in the coming months. Markets are currently pricing in roughly 33 basis points of further ECB tightening by year-end, with the October 29 policy meeting expected to be a close call. ECB Officials: Higher Inflation Risk, Limited Wage Pressure ECB Executive Board member Philip Lane said the Eurozone economy should keep growing at a steady, moderate pace provided the energy shock does not intensify, though a second wave of energy-price increases would push inflation higher before it resumes its path toward target from mid-2027. Lane added that the ECB is not yet seeing a significant wage response to the energy shock, meaning second-round inflation effects remain limited for now.

Bundesbank President Joachim Nagel said Oil prices have become an increasingly relevant input to ECB policy assessment over the past four years, while noting current rates remain in neutral territory even as the central bank may eventually need to shift toward mildly restrictive settings. Taken together, the tone from ECB officials was cautiously hawkish on inflation but conditional, with no signal of an imminent policy move.

CFTC Positioning Data: Euro Short Sellers Retreat Speculative bearish positioning in the Euro eased sharply in the week ending September 15, per the latest CFTC report. Net shorts were trimmed to nearly 27,000 contracts, reversing much of the prior week's deterioration, while the 4-week change rose to almost 32,100 contracts, confirming a broader shift toward a less negative stance. Open interest slipped to roughly 920,000 contracts, suggesting the move reflects short covering rather than fresh Euro buying. Speculative exposure improved to -2.93%, with its percentile rising to 13.7, and the net position percentile increasing to 11.8. Both readings remain historically low, showing that EUR positioning is still bearish overall, even as the intensity of that bias fades. What to Watch Next Week in the EUR/USD Forecast. The coming week could be pivotal for the Euro to US Dollar exchange rate. Preliminary inflation figures from Germany and the wider Eurozone will show whether energy-driven price pressure is starting to filter into inflation expectations. In the United States, attention turns to the labor market: JOLTS Job Openings, ADP employment data, and Friday's Non-Farm Payrolls report should all help shape expectations for the Federal Reserve's next policy steps. A packed calendar of ECB and Fed speeches adds further scope for volatility. EUR/USD Forecast Conclusion: Dead-Cat Bounce or Turning Point? The Euro's slide has not been driven by a sudden deterioration in Eurozone fundamentals, but by a market that has refocused on the US Dollar's renewed appeal, supported by Fed tightening expectations, firmer Treasury yields, and an uncertain geopolitical backdrop. The ECB has not dropped its hawkish-leaning stance, and higher energy prices reinforce the case for continued vigilance on inflation. But as long as markets believe the Fed still has more tightening ahead than the ECB, that is unlikely to be enough to shift the broader trend. The recent easing in bearish Euro positioning is a mildly encouraging sign, but a genuine trend reversal will likely require easing geopolitical tension, a broader improvement in risk appetite, and clear evidence that the Fed's tightening cycle is nearing its end. Until then, rallies in EUR/USD are more likely to be treated as selling opportunities than the start of a sustained recovery. Frequently Asked Questions Why is EUR/USD falling this week? EUR/USD is falling mainly because of renewed US Dollar strength tied to expectations of further Federal Reserve tightening, not because of weaker Eurozone data. Could rising energy prices affect the EUR/USD forecast? Yes. Higher Oil and gas prices raise Eurozone inflation risk, keeping alive the possibility of additional ECB rate hikes, which could offer some support to the Euro. What would it take for EUR/USD to reverse its downtrend? A sustained recovery likely needs easing geopolitical tensions, improving global risk appetite, and clear signs that the Federal Reserve's tightening cycle is ending. This analysis is for informational purposes only and does not constitute investment advice. Currency markets carry risk, and past performance is not indicative of future results.