Euro reclaims 1.1200 against weak USD as post-ECB rebound from YTD low continues

• A combination of supportive factors carries EUR/USD higher for a third consecutive day.
• With the USD weakening, the ECB’s hawkish stance lends further support to the Euro and the pair.
• Expectations of a Fed rate rise and geopolitical uncertainty could contain USD losses and restrain the pair’s advance.

From the 1.1100 area, its lowest level since May 2025, EUR/USD staged a solid rebound the previous day and extends that recovery on Friday for a third consecutive day of gains. A combination of supportive factors takes the pair further above 1.1200 during Asian trading.

Rising inflation risks from surging energy costs have left a December rate rise firmly on the table, according to the European Central Bank's (ECB) hawkish outlook, underpinning the single currency. At the same time, hopes for Middle East diplomacy and a sharp fall in US bond yields see the US Dollar (USD) extend its retreat from a two-week high, giving EUR/USD a further lift.

Efforts to revive peace talks have included a direct letter from US Vice President JD Vance to Mohsen Rezaei, secretary of Iran's Supreme National Security Council. Qatari mediators have also put forward a new draft agreement to Iran aimed at ending the war with the US and Israel. Escalating hostilities between Houthis in Yemen and Saudi Arabia nevertheless keep investors cautious.

Concerns over Middle Eastern supply disruptions intensified after Iran's navy claimed on Thursday that four oil tankers had hit sea mines in the Strait of Hormuz. With uncertainty helping to keep crude oil prices elevated, inflation worries are reinforcing hawkish expectations for the US Federal Reserve (Fed). That backdrop could contain the USD's decline and restrict any substantial EUR/USD gains.

Around a 75% probability of another increase in US borrowing costs in December is currently priced in by traders, according to CME Group's FedWatch Tool. Thursday's US economic releases reinforced those expectations: growth accelerated to an annualised 3.4% in the July-September quarter, while September inflation remained above the central bank's 2% target.

This fundamental backdrop supports the prospect of renewed buying on USD dips. It therefore remains prudent to await strong follow-through buying before concluding that EUR/USD has established a near-term bottom and positioning for additional gains. For short-term opportunities, traders are now awaiting the euro area's initial third-quarter GDP growth estimate and consumer inflation data.

EUR/USD Recovery Shown on the 4-Hour Chart

EUR/USD Recovery Stalls at Technical Resistance

On the 4-hour chart, the 100-period Exponential Moving Average (EMA) is halting the EUR/USD recovery. Although the pair has repeatedly rebounded from around the 1.1100 round number, its inability to regain this EMA points to continued near-term resistance. A sustained move above the 100-period EMA at 1.1211 is therefore required to relieve downward pressure and pave the way for a more constructive recovery.

(The technical analysis of this story was written with the help of an AI tool. Know more.)