EUR/USD: A Broken Trendline Meets the Fed’s Biggest Test Yet

EUR/USD sits near 1.1610, just off a one-month low, as tomorrow’s Fed decision looms as the week’s true catalyst. The ECB delivered its second hike of the year on September 10, lifting the deposit rate to 2.50% and warning that Middle East-driven inflation pressures will keep price growth well above target for an extended period. Lagarde called the move a “no-brainer”, yet the euro barely reacted; the hike had been fully priced in, and markets are already pricing more ECB tightening than the central bank’s own projections suggest is needed.

The real action lies across the Atlantic. Thursday’s hotter-than-expected US CPI print pushed September Fed hike odds sharply higher, from 67% to 88% intraday, though the dollar has struggled to fully capitalise as falling oil prices pull Treasury yields back from three-year highs near 4.99%. Adding political noise, President Trump has reportedly pressed Fed Chair Kevin Warsh directly on rate cuts, a claim Trump himself has downplayed, just as the Fed enters its blackout period ahead of Tuesday’s meeting.

The result: an ECB that has already delivered its hawkish surprise with muted market impact, against a Fed whose next move, and its independence from political pressure, could prove far more consequential for EUR/USD heading into Wednesday.

Technical Analysis of EUR/USD

As the EUR/USD chart shows, the pair has recently broken below the ascending trendline that had guided the entire late-July recovery, a genuine shift in structure, and has now also lost the 200-period EMA and the 0.382 Fibonacci confluence near 1.1580, both of which had served as reliable support during the advance. Price is currently testing the 0.5 retracement near 1.1533, a key level in its own right.

Bullish Scenario

Should buyers reclaim the 0.5 support and stage a recovery, the first real test becomes the confluence of the 200-period EMA and the 0.382 retracement near 1.1580, now flipped into resistance. A confirmed break back above that zone would open the path towards retesting the broken ascending trendline, which itself converges near the last resistance on the chart.

Bearish Scenario

Conversely, a decisive break below the 0.5 retracement would confirm the bearish structure taking hold, exposing the 0.618 level near 1.1490, precisely where the broken descending trendline now sits as a potential resistance-turned-support test on the way down. A failure to hold there would risk a deeper slide towards the 0.786 retracement near 1.1430.

With price having just lost both its ascending trendline and the 200-period EMA in quick succession, EUR/USD’s next move looks set to determine whether Wednesday’s Fed decision accelerates this correction, or gives buyers a reason to defend the 0.5 support first.

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