1.1200 reclaimed: Euro extends post-ECB rebound from YTD low against weak USD

• EUR/USD advances for a third consecutive day. Several supportive factors underpin the move.
• A softer USD and the ECB’s hawkish stance support the Euro and lift the pair.
• Further gains in the pair could be constrained as Fed rate-hike expectations and geopolitical uncertainty cushion the USD.

EUR/USD extends its advance above 1.1200 in Friday’s Asian session. With several factors providing support, the pair gains ground for a third consecutive day. The move builds on the previous day’s solid recovery from around 1.1100, its lowest level since May 2025.

Rising inflation risks from surging energy costs have kept a December rate increase firmly on the table in the European Central Bank’s (ECB) hawkish outlook, supporting the shared currency. Meanwhile, hopes for diplomacy in the Middle East and a sharp fall in US bond yields have seen the US Dollar (USD) extend its pullback from a two-week high. That weakness provides further support for EUR/USD.

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 submitted a fresh draft agreement to Iran aimed at ending the war with the US and Israel. Despite those developments, intensifying hostilities between Houthis in Yemen and Saudi Arabia continue to keep investors cautious.

Concerns over Middle East supply disruptions deepened after Iran’s navy claimed on Thursday that four oil tankers had hit sea mines in the Strait of Hormuz. With uncertainty keeping crude oil prices elevated, inflation concerns are reinforcing expectations of a hawkish US Federal Reserve (Fed). This backdrop could cushion the USD’s decline and restrict any substantial EUR/USD upside.

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

These fundamentals strengthen the case for renewed buying on USD dips. Strong follow-through buying would therefore be needed before confirming a near-term EUR/USD 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.

4-hour EUR/USD chart

1.1211: Technical Recovery Threshold

On the 4-hour chart, the 100-period Exponential Moving Average (EMA) is holding back 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 short-term resistance. A sustained move above the 100-period EMA at 1.1211 is therefore required to relieve downward pressure and open the way for a more constructive recovery.

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