EUR/USD Bulls Squeeze Dollar Before Fed Rate Decision

EUR/USD is holding above 1.1600 because traders have enough reasons to sell the dollar, but not enough conviction to chase the euro before the Fed. The pair traded with a positive bias for a third straight day and stayed above the 1.1600 mark during Wednesday’s Asian session, according to FXStreet.

The move keeps the euro’s recovery alive after last week’s slide to the 1.1500 psychological mark, described by FXStreet as a more than two-month low. The immediate driver is a softer US Dollar, pressured by optimism around an interim peace deal between the US and Iran. The bigger test comes next: the Federal Reserve decision, updated projections, the dot plot, and comments around new Fed Chair Kevin Warsh’s debut.

EUR/USD holds above 1.1600 for a third day, but the move is still waiting for confirmation

The thesis is simple: EUR/USD has regained short-term control above 1.1600, but bulls are pausing before the Fed rather than forcing a breakout. That distinction matters. The pair has recovered from the 1.1500 area, but FXStreet says buyers “seem hesitant” ahead of the outcome of the two-day FOMC meeting.

The euro is getting help from both sides of the pair. The dollar is under pressure as safe-haven demand eases after the US and Iran agreed to a framework peace deal. The euro, meanwhile, is supported by the European Central Bank’s hawkish signal after an interest rate hike for the first time in three years.

FXStreet also points to the ECB’s updated inflation view. The central bank raised its 2026 inflation projections to 3%, citing prolonged energy shocks and broader price pressures across the eurozone. Traders are still pricing in roughly 40 basis points of additional ECB hikes for 2026.

That creates a clean policy contrast, at least for now:

The counterpoint is clear. Holding above 1.1600 is not the same as a confirmed upside extension. The market is waiting for policy language, not just price action.

For readers with real currency exposure rather than intraday trades, this is the type of setup where FX levels can matter operationally, not just on a chart. XOOMAR has covered how firms manage that pressure through multi-currency accounts for remote team FX costs, a separate but relevant issue when currency swings hit payroll, invoices, or cross-border balances.

Fed rate decision puts the US dollar at the center of EUR/USD trading

The Fed is the main event because it can either validate dollar weakness or interrupt the euro’s rebound. FXStreet says market focus will remain on the rate decision, the latest economic projections, and the dot plot. Warsh’s post-meeting press conference will be watched for signals on the future policy path.

The dollar’s problem is that one of its classic supports, safe-haven demand, has weakened. The US-Iran framework peace deal includes a 60-day ceasefire, the reopening of the Strait of Hormuz, and planned technical negotiations over Iran’s nuclear program. Those details have reduced immediate demand for the US currency, according to the source.

“The initial memorandum of understanding (MOU) establishes a 60-day ceasefire, the reopening of the Strait of Hormuz, and sets the stage for technical negotiations over Iran's nuclear program.”

But the deal is not fully priced as a clean resolution. FXStreet says other details remain scarce. That uncertainty, combined with expectations that the Fed might still hike rates by 25 bps in December, is keeping dollar bears from taking aggressive positions.

That is the strongest counterweight to the EUR/USD rally. If the Fed statement, projections, or Warsh’s comments reinforce the idea that policy could stay tighter for longer, the dollar could recover some ground and cap the euro near current levels. If the Fed leans less hawkish than traders fear, the pressure on the dollar could deepen and give EUR/USD room to test higher levels.

Euro bulls need a clean break higher before 1.1600 becomes momentum

Above 1.1600, buyers have the near-term advantage. Below it, the current euro bid starts to look vulnerable. That is the practical trading line from the source material, even though the Fed can override technical levels quickly.

The recent recovery started after EUR/USD touched the 1.1500 psychological mark last week. Staying above 1.1600 shows demand has not disappeared, but the pair has not yet shown that traders are willing to extend exposure before the Fed outcome. FXStreet’s wording points to patience, not euphoria.

The upside case rests on two supports: a softer dollar and a still-hawkish ECB. The downside case rests on Fed risk. A December Fed hike expectation, even if only a possibility, is enough to stop traders from treating dollar weakness as a one-way trade.

For active traders, the lesson is less about predicting the Fed and more about respecting event risk. Backtests can help expose bad assumptions in repeatable setups, which is why XOOMAR’s look at no-code stock backtesting software and bad trades is relevant to process, even though EUR/USD itself will move on central-bank language and rates rather than equity signals.

Kevin Warsh’s Fed message will decide whether EUR/USD extends or stalls

The next EUR/USD swing depends on whether the Fed gives traders permission to keep selling the dollar. The rate decision matters, but the dot plot and Warsh’s press conference may matter more if the headline decision lands close to expectations.

The market will parse three signals. First, whether the projections keep a December 25 bps hike in play. Second, whether inflation language suggests the Fed remains uncomfortable with price pressures. Third, whether Warsh sounds willing to keep policy restrictive even as geopolitical risk cools.

The euro side has its own support, but it is already visible: the ECB hike, the 3% 2026 inflation projection, and pricing for roughly 40 basis points of additional hikes next year. That means the next surprise probably has to come from Washington, not Frankfurt.

The near-term setup is narrow but useful. EUR/USD holds the upper hand while it stays above 1.1600, yet the Fed can turn that level from support into a failed rally if Warsh’s message revives dollar demand. The watch item is not just the rate decision. It is whether the Fed’s projections make euro bulls more confident, or force them back into wait-and-see mode.

Disclaimer: This XOOMAR analysis is for informational and educational purposes only. It is not financial, investment, legal, tax, or professional advice. It does not provide buy, sell, hold, price-target, portfolio, or personalized recommendations. Verify information independently and consult qualified professionals before making decisions.

The Bottom Line

• EUR/USD holding above 1.1600 signals short-term euro strength but not yet a confirmed breakout.
• The Fed decision could reset dollar direction and determine whether the euro recovery continues.
• ECB hawkishness and higher inflation projections are giving traders a reason to stay constructive on the euro.