Euro Extends Recovery as US Dollar Hits Six-Week Low

Summary:

EUR/USD rebounds toward 1.1250 as AI investment concerns pressure US equities, Treasury yields and the Dollar. However, the Fed's restrictive policy outlook could limit the Euro's recovery.

Buy EURUSD

EXP

Trading

1.12510

ENTRY

1.14900

TGT

1.11000

1.12378 +0.00176 +0.16%

Point

Flat

1.11000

CLOSING

1.12510

ENTRY

1.14900

TGT

The Euro extended its recovery against the US Dollar on Friday, with EUR/USD advancing toward 1.1250 after rebounding from Wednesday's 16-month low near 1.1113. The recovery has been driven largely by renewed weakness in the Greenback as concerns surrounding artificial intelligence investments trigger selling across US financial markets.

The US Dollar Index (DXY) declined toward 101.67, revisiting a six-week low as investors reassessed the sustainability of AI-driven investment growth and its contribution to US economic resilience.

Strategists at OCBC warned that the same AI investment boom that has supported US economic expansion, equity valuations and Treasury yields could become a source of vulnerability if investor confidence deteriorates. Unlike traditional periods of global uncertainty, where investors typically favour the Dollar, the latest market turbulence has originated largely from concerns surrounding US assets.

This has created an unusual market environment in which declining Treasury yields and weakening US equities are putting additional pressure on the Greenback despite broader risk aversion.

However, OCBC believes the recent AI-related volatility represents a temporary disruption rather than a fundamental breakdown in the investment cycle, suggesting that the Dollar's longer-term outlook remains dependent on whether US growth expectations can stabilize.

Meanwhile, Federal Reserve Chair Kevin Warsh offered limited guidance on the central bank's next monetary policy decisions. Although he reiterated the importance of price stability and acknowledged the strength of investment activity, Warsh avoided committing to a specific interest rate path ahead of the October and December FOMC meetings.

The broader Fed policy outlook remains restrictive, with the FXS Fed Sentiment Index holding at 127.51, indicating that expectations of additional monetary tightening have not materially weakened.

For EUR/USD, the immediate recovery appears increasingly dependent on continued Dollar weakness rather than a significant improvement in Eurozone fundamentals. A sustained retreat in US yields could support further gains, although persistent Fed tightening expectations may eventually limit the pair's upside.

Technical Analysis

EUR/USD is showing signs of a potential bullish reversal on the 4-hour chart, with the pair recovering from its recent 16-month low near 1.1113 and gradually rebuilding upward momentum. After several weeks of persistent selling pressure, the latest price action suggests that bearish momentum is beginning to weaken, with buyers attempting to establish a recovery above the important 1.1240–1.1260 resistance zone.

The recent consolidation between 1.1130 and 1.1250 has created a potential accumulation structure, characterized by repeated rebounds from the lower support region and increasingly firm buying interest around 1.1200. The sharp recovery from the latest low, followed by a renewed test of the upper boundary, indicates that buyers are beginning to challenge the prevailing bearish structure.

A decisive breakout above 1.1260 would provide the first meaningful confirmation of improving bullish momentum, potentially opening the door toward the next resistance zone at 1.1350–1.1370. This area previously acted as an important support level before the September decline and could attract some profit-taking. A brief corrective pullback following an initial test would be consistent with the projected recovery structure.

Should buyers successfully establish support above 1.1350, the next upside objective emerges around 1.1480–1.1500. A sustained move beyond this barrier would represent a stronger shift in market sentiment, exposing the higher resistance region at 1.1630–1.1650, followed by a possible extension toward 1.1740–1.1760.

On the downside, immediate support remains around 1.1200, while the more significant demand zone is located at 1.1130–1.1150. A sustained decline beneath this region would undermine the developing bullish recovery and increase the risk of another test of the recent lows near 1.1110.

Although the broader trend has not yet fully reversed, the improving short-term structure suggests that EUR/USD may be entering the early stages of a more substantial recovery. Confirmation above 1.1260 remains essential before the bullish scenario gains stronger technical credibility.

TRADE RECOMMENDATION

BUY EUR/USD

ENTRY PRICE: 1.1251

STOP LOSS: 1.1100

TAKE PROFIT: 1.1490

Risk Warnings and Investment Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.

Quick Access to 7x24

Quick Access to More Editor-selected Real-time News

Exclusive video for free

FastBull project team is dedicated to create exclusive videos

Real-time Quotes

View more faster market quotes

More comprehensive macro data and economic indicators

Members have access to entire historical data, guests can only view the last 4 years

Member-only Database

Comprehensive forex, commodity, and equity market data

Warren Takunda

Analysts

Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.

Rank

Articless

3126

Win Rate

63.77%

P/L Ratio

0.73

Focus on

XAUUSD, EURUSD, GBPUSD

Related Analysis

Euro Extends Recovery as US Dollar Hits Six-Week Low

Trading