2025-12-16 17:54:00
ECB rate decision ahead as policy divergence narrows between the ECB and Fed
The ECB rate decision later this week is widely expected to result in no change in policy, with markets viewing the central bank as already near the lower end of its easing cycle. Recent comments from ECB President Christine Lagarde, as highlighted on InvestingLive, have reinforced a data-dependent stance, with policymakers emphasizing the need to assess incoming inflation, wage, and growth data before committing to further moves. Lagarde has avoided pre-committing to a clear path, stressing that decisions will be taken meeting by meeting, even as inflation pressures continue to ease gradually.
From a broader perspective, the policy divergence narrative has begun to shift in favor of the euro. The US Federal Reserve has already started cutting rates, and markets are increasingly focused on the possibility of a more dovish Fed in 2026, particularly with the prospect of a new Fed Chair who may be more tolerant of easing to support growth and employment. By contrast, the ECB appears closer to its terminal low, limiting the scope for aggressive additional cuts in the euro area.
Fundamentally, this evolving backdrop has helped support the rise in EURUSD, as rate differentials compress and expectations for future US easing increase. While near-term moves will remain sensitive to incoming data on both sides of the Atlantic, the combination of a data-dependent but relatively constrained ECB and a potentially more accommodative Fed outlook provides a constructive medium-term backdrop for the euro from a fundamental standpoint.
Uptrend extends but momentum shows signs of fatigue
What about the technicals?
The EURUSD has been working higher for a fourth consecutive week, reflecting a steady recovery from the September lows and improving sentiment around narrowing policy divergence. That upside push has been technically significant, with the pair breaking above the 61.8% retracement of the decline from the September high, which comes in at 1.1746—a level tied to the highest price since 2021. This break helped fuel further upside momentum and encouraged buyers to target higher resistance zones.
Key resistance breaks — and fails
Earlier today, the pair extended above a key swing area between 1.1779 and 1.1788, a zone that had capped prior advances. The breakout briefly carried the price to 1.1803, marking the highest level since September 24. However, upside momentum could not be sustained, and the pair has since slipped back below that swing area, with current trade near 1.1771. This failed break raises a red flag for buyers and suggests the market may need to consolidate or correct before attempting another push higher.
Near-term bias: sellers lean against broken resistance
With price back below the 1.1779–1.1788 resistance zone, that area now becomes a clear level for sellers to lean against. As long as EURUSD remains below this band, the near-term bias tilts more cautiously bearish, favoring a pullback rather than immediate continuation higher.
Downside levels to watch
If selling pressure builds, traders will look toward:
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1.1762: last week’s high and initial downside target
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1.1746: the broken 61.8% retracement, now key support
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1.1693: the midpoint of the range since mid-September, a deeper corrective target
A move toward these levels would still be considered corrective within the broader uptrend, rather than a trend reversal.
Upside scenario: buyers regain control
Conversely, a decisive break back above 1.1788 would negate the failed breakout signal and put buyers back firmly in control. In that case, upside targets shift to:
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1.1818: September 23–24 highs
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1.1829: July 1 high
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1.1918: the year’s high, and the next major bullish objective
Technical takeaway
The EURUSD remains in a medium-term bullish structure, but the failure to hold above resistance introduces near-term risk. The battle lines are now clearly drawn at 1.1779–1.1788. Above it, buyers reassert control; below it, a corrective pullback remains the more likely path.
Watch the video analysis
In the video above, I (Greg Michalowski, author of Attacking Currency Trends) break down the technical factors driving AUDUSD in real time, outlining the bias, the risk-defining levels, and the next upside and downside targets that matter most.
Be aware. Be prepared.
