EUR/USD began the trading week with a small gap higher but effectively stayed close to Friday's close. Last week ended at 1.1203, while Monday's open was 1.1216. Formally, the gap favors euro buyers, but in practice, the pair is stuck, now for a fourth consecutive week.
According to the weekly chart, the pair has traded sideways since early October, repeatedly bouncing off the upper and lower Bollinger Bands on the 4-hour chart. Through most of October, the 1.1180–1.1250 band has been traders' "work range" for EUR/USD, a zone where short and long entries are opened near the corridor edges. That sideways idyll may end after this week: a busy economic calendar is likely to pull pairs out of the drawn-out consolidation and trigger a powerful price impulse. The question is which side — buyers or sellers — will prevail.
At a minimum, I expect the pair to remain range-bound until the Fed announces its October decision. Traders are unlikely to open large positions ahead of these high-impact events. In addition to the Fed, the ECB will issue its decision. The US calendar also includes preliminary Q3 GDP and the core PCE index, one of the Fed's key inflation gauges.
In my view, the near-term edge favors the dollar. Both central banks must account for the oil shock, but their scope for further tightening differs markedly. The US economy still shows some resilience, while the eurozone's recovery looks increasingly fragile.
For the Fed, the main concern is inflation spreading beyond energy. September core CPI accelerated from 2.4% to 2.6% year-over-year, and services ex-energy rose by 0.4% month-over-month. Producer prices also surprised to the upside: headline PPI rose by 1.3% m/m, and services PPI added 0.8%. So you can't simply blame September's inflation uptick on gasoline alone.
And the oil market keeps feeding inflation risk. Over the past week, Brent jumped by 6.2%. Even today's pullback doesn't erase the prior rise: Brent remains above $110/bbl. Expensive energy raises transport and manufacturing costs and creates conditions for further pass-through to consumers.
Given that, the most likely outcome at the October Fed meeting, whose results we'll see the day after tomorrow, is a hawkish pause. Fed Chair Kevin Warsh could not only reinforce market odds of a December hike but also leave the door open for further moves in the first half of next year if inflation does not ease. Such an incremental hawkish signal would give the greenback a material boost because a December tightening is already largely priced in.
By contrast, the ECB has much less room to tighten further. Eurozone composite PMI for October fell from 53.1 to 51.9 and services PMI from 53.0 to 51.7. Formally, the readings remain in expansion territory, but they are perilously close to contraction. New order inflows have weakened, and hiring has essentially stalled. France is particularly fraught: political uncertainty and street protests have pushed business conditions into contraction and business confidence to lows not seen since 2012 (excluding the pandemic). Under those circumstances, a further ECB rate hike risks deepening demand weakness. So, on October 29, the ECB is more likely to avoid a hawkish tone, and any hint of dovishness will be interpreted as euro-negative, especially while the Fed appears poised to stay hawkish.
Key US macro releases could widen that divergence. The GDPNow model currently estimates Q3 US annualized growth at 3.5% versus the market consensus of 3.0% (some estimates 3.2%). That would be a constructive surprise, driven largely by resilient consumer demand. Also watch the core PCE for September: economists' calculations after recent price releases put the month-over-month core PCE in a 0.31%–0.36% range, with the upper bound rounding to 0.4% (the consensus is 0.3%). On an annual basis, core PCE would tick up to about 3.1% from 3.0%.
So strong US GDP and core PCE prints would reinforce hawkish Fed bets. Against a more cautious ECB, this mix would create conditions for EUR/USD to break down from the long consolidation and move lower. Nonetheless, until the Fed's decision is out, the pair will likely trade within the familiar 1.1180–1.1250 range, with most participants unwilling to take large directional bets before the US central bank clarifies its stance.
For a sustained dollar strengthening, you'd need signals beyond already-priced expectations, namely, clearer prospects of additional Fed tightening in H1 2027. If the Fed even hints at that possibility (and US data supports it), the scales would decisively tip toward the greenback, and EUR/USD would likely settle below the lower boundary of the 1.1180–1.1250 corridor.
