Euro-to-Dollar Week Ahead Forecast: Increasing Confidence

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The euro looks set to build on its recent gains made against against the dollar this week.

The euro to dollar exchange rate (EUR/USD) is recovering from October's selloff and a move above 1.1650 is possible in the coming days as that move builds in confidence.

Momentum is turning in the euro bulls' favour, with EUR/USD breaking through the 21-day exponential moving average (EMA) last week; a first step in shifting the trend from lower to higher.

"Technically, euro buyers managed to push through the 21‑day moving average into the weekend, breaking a cap that had held since early October," says Antonio Ruggiero, an analyst at Convera.

"However, the 50‑ and 100‑day moving averages clustered around $1.1660 remain formidable hurdles," he cautions.

The chart shows the 21-day and 50-day EMAs, as well as a descending trendline that guided the market lower during September and October.

The break above the trendline and the 21-day signal shows some improved resilience, but clearly overcoming resistance at the 50-day at 1.1620 is required to signal a more convincing about-turn.

So the euro is not in the clear just yet, but if a break occurs, 1.1650 and then 1.1700 are lined up.

It will be an interesting week for euro-dollar given the return of official U.S. statistics, which will guide shifts in the all-important expectations for Federal Reserve policy.

U.S. labour market data for September is scheduled to be presented on Thursday; consensus expects employment to accelerate to 50K from 22K in August and the unemployment rate to remain unchanged at 4.3%.

Anything above this will nix a December rate cut and put EUR/USD under severe pressure.

"Market participants and the Fed will scrutinise the report closely to better assess the health of the US labour market ahead of the next FOMC meeting in December," says Lee Hardman, Senior Currency Analyst at MUFG Bank Ltd.

U.S. interest rate markets now judge that a third back-to-back 25bps cut is close to 50/50, meaning a strong employment print can have a material impact on these expectations.

Should December rate cut odds fall further, the dollar would strengthen and EUR/USD fall.

However, private sector economic surveys that have been released in the absence of official U.S. statistics suggest the economy continues to endure a softening in labour market conditions, and this raises the odds of a disappointing jobs print.

If Thursday's data undershoots, the odds of a December rate cut will jump and the dollar will retreat further.

Should the Fed commit to a series of rate reductions, then the dollar could fall meaningfully into the early parts of 2026, allowing EUR/USD a shot at the 1.19 highs.

"Our forecasts for the U.S. dollar to weaken further heading into year-end rest on the assumption that U.S. labour demand remains weak leaving the door open for further Fed rate cuts," says Hardman.