The euro held a bullish structure against the dollar on Thursday, trading between 1.1638 and 1.1650 as investors awaited fresh policy signals from the European Central Bank.
EUR/USD retreated from last week’s high above 1.1700, failing to sustain a break above the late-May peak at 1.1685. The pair also met resistance at the 78.2% Fibonacci retracement of the May-June decline, around 1.1692, forming a seven-pip confluence that has now capped gains twice. The three-month high near 1.1697, set on August 21, remains unchallenged.
Technical indicators suggest underlying strength. The pair holds above prior resistance at 1.1620, the June 16 and August 17 highs, preserving the near-term bullish trend. The daily Relative Strength Index remains above 65, while the MACD stays modestly positive, indicating constructive momentum rather than a reversal signal. Spot is also trading 0.96% above its 50-day exponential moving average and 1.01% above its 100-day counterpart.
The two-month recovery from a June 24 low of 1.1355 has lifted EUR/USD by 2.72%, with the pair advancing from roughly 1.14 in late July to the mid-1.16 range within four weeks. The 50-day simple moving average is positioned at 1.1508.
The broader macro backdrop remains mixed. The pair entered 2026 as consensus long, with year-end targets clustered between 1.24 and 1.25, but momentum stalled after the Strait of Hormuz tensions drove energy-driven inflation higher. The ECB raised rates on June 11 for the first time since 2023, while the Federal Reserve signaled a hawkish tilt on June 17, pushing EUR/USD to 1.14 before the rebound began.
Both central banks are now tightening, but without a clear rate-divergence signal to sustain a directional move. The ECB’s July accounts, published Thursday, underscored the hawkish tilt, with policymakers framing the rate hold as a "pause" rather than the end of the tightening cycle.
The minutes showed that while the Governing Council kept rates unchanged on July 22-23, members anticipated a further increase as early as September unless inflation prospects improved materially. The language emphasized that the pause did not imply the end of hikes, a nuance that has since gained traction in market pricing.
Market expectations for a 25-basis-point September hike, lifting the deposit facility rate from 2.25% to 2.50%, are now close to fully priced. The decision hinges on three factors: eurozone inflation near 3% against a 2% target, persistent energy-price pressures from Middle East tensions, and evidence of economic resilience despite geopolitical risks.
Euro area annual inflation accelerated to 2.9% in July from 2.8% in June, driven largely by energy costs, which surged 10.0% year-over-year. Core inflation rose to 2.5%, while services inflation edged up to 3.3%. The uptick was broad-based, with Germany at 2.8%, France at 2.4%, Spain at 3.8%, and the Netherlands at 2.9%. Italy eased slightly to 2.9%.
ECB policymakers, including Executive Board member Isabel Schnabel, have indicated that future decisions will depend on incoming data, leaving open the possibility of additional hikes beyond September. Corporate lending growth in the bloc accelerated to 4.4% in July, the fastest pace in three years, reinforcing the case for tighter policy.
For EUR/USD, the fully priced September hike offers no immediate upside, as the move has already been anticipated. The focus now shifts to the ECB’s guidance on whether September marks the final hike or the start of a prolonged tightening cycle, a distinction that could shape the pair’s trajectory ahead of the September 9-10 meeting.
