EUR/USD Analysis: Euro Attempts to Recover Following the ECB Decision

Today's session has been particularly relevant for the euro's performance in the short term. After the EUR/USD registered a decline of nearly 0.3% during the session, the European currency has managed to recover a large part of its losses. However, it is important to note that the pair still has not been able to establish a clear directional bias over recent trading sessions. This situation is partly driven by today's European Central Bank decision, but also by expectations regarding what could happen with the U.S. dollar over the coming days. As long as uncertainty surrounding both central banks remains present, a phase of indecision could continue to be an important feature of EUR/USD price action.

What Happened with the ECB Decision?

Today's session was dominated by the European Central Bank's monetary policy decision. The institution decided to raise interest rates, taking the deposit rate from 2.25% to 2.50%, while the main refinancing rate moved from 2.40% to 2.65%. This decision reflects a renewed shift toward higher interest rates and reinforces the perception of a more aggressive ECB, particularly because interest rate levels that had been reduced during 2025 are now being revisited.

Source: TradingEconomics

The truly important aspect of the event came from the comments delivered after the decision. Christine Lagarde emphasized that economic activity across Europe has been performing better than the central bank expected and also highlighted the recent evolution of inflationary pressures. She even suggested that inflation could remain above the ECB's target for an extended period.

Although Lagarde did not commit to a specific interest rate path, she stated that the energy shock generated by the conflict in the Middle East may not have been fully transmitted into the European economy and could continue representing an important challenge. These comments align with recent inflation data, as August figures continue showing inflation close to 3.3%, marking a new high for 2026 and moving further away from the ECB's 2.0% target. This situation could continue supporting the idea of a more restrictive central bank over the coming months.

Source: TradingEconomics

However, it is also important to remember that the 25-basis-point increase was already widely expected by markets. Furthermore, while Lagarde maintained a more hawkish tone, she reiterated that future decisions will remain data-dependent and avoided committing to additional rate hikes over the coming months.

This has limited the euro's ability to extend its recovery in a more meaningful way following the announcement. Adding to this situation are ongoing expectations regarding the U.S. dollar, another factor that continues generating caution within the market.

Against this backdrop, attention is now shifting toward tomorrow's release of the U.S. CPI report. This indicator measures inflation trends and could alter expectations surrounding the Federal Reserve. Part of the current caution in the market is linked to this release, something that can also be observed in the recent behavior of the DXY Index, which measures the strength of the dollar against its main rivals. For now, the index continues fluctuating near the 99-point level without showing particularly aggressive moves, reflecting that investors are waiting for a clearer signal before adopting a stronger view.

 

Source: TradingEconomics

The situation therefore appears relatively straightforward. The ECB's decision was clearly hawkish and helped the euro attempt a recovery. However, the reaction has not been particularly strong because there is still no certainty regarding additional rate hikes in upcoming meetings. At the same time, markets remain focused on how the U.S. dollar could react to the upcoming inflation data.

As a result, a phase of indecision may continue to be relevant within EUR/USD price action in the near term. However, if inflation data reinforces expectations of a Federal Reserve that is even more aggressive than the ECB, the interest rate differential could once again shift in favor of the U.S. dollar and open the door to more meaningful selling pressure around EUR/USD over the coming weeks.

EUR/USD Technical Outlook

Source: StoneX, Tradingview

• Potential Trendline Continues Trying to Hold: EUR/USD price action over recent weeks has continued attempting to sustain a potential bullish trendline, which remains the most relevant technical structure on the daily chart. However, the lack of direction seen in recent sessions has reduced short-term volatility and, if this dynamic persists, it could not only threaten the current bullish structure but also open the door to a more established period of sideways trading during the weeks ahead.
   

• RSI: The RSI continues to display a relatively flat slope, a situation that reflects a reduction in both bullish and bearish momentum during the short term. As long as this behavior remains in place, it could continue highlighting a growing phase of indecision within the chart.
   

• MACD: A similar picture can be observed in the MACD histogram, which remains close to the neutral 0 line. This reflects balance within the average strength of short-term moving averages and supports the possibility that a phase of indecision could continue dominating market activity during the coming sessions.
   

Key Levels to Watch:

• 1.17127 – Key Resistance: A high not seen since May of this year and the most important upside barrier within the current structure. Price action that manages to approach or break above this level could restore relevance to the bullish trend observed in previous weeks and support a stronger recovery in the period ahead.
   

• 1.16400 – Nearby Barrier: An important equilibrium zone that coincides with previous retracement areas and the 200-period Simple Moving Average. As long as price continues developing around this level, a lack of direction could remain dominant and a broader period of sideways trading may gain importance in the short term.
   

• 1.15262 – Critical Support: A level that coincides with one of the most relevant lows observed in recent weeks as well as the 50-period Simple Moving Average. Price action moving below this area could begin to restore relevance to a more dominant bearish bias, potentially becoming an important factor for EUR/USD during the coming weeks.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25