Euro extends post-ECB recovery from YTD low and retakes 1.1200 vs weak USD

• EUR/USD scales higher for the third straight day amid a combination of supporting factors.
• The ECB’s hawkish outlook acts as a tailwind for the Euro and spot prices amid a weak USD.
• Fed hike bets and geopolitical uncertainties could limit USD losses and cap gains for the pair.

The EUR/USD pair builds on the previous day's goodish rebound from the 1.1100 neighborhood, or a fresh low since May 2025, gaining positive traction for the third straight day on Friday. The momentum lifts spot prices further beyond the 1.1200 mark during the Asian session and is supported by a combination of factors.

The shared currency draws support from the European Central Bank's (ECB) hawkish outlook, signaling that a rate hike in December is firmly in play as inflation risks were on the rise from surging energy costs. The US Dollar (USD) is seen extending its retracement slide from a two-week high amid hopes for Middle East diplomacy and a slump in US bond yields, providing an additional boost to the EUR/USD pair.

In the latest developments, US Vice President JD Vance sent a direct letter to the secretary of Iran's Supreme National Security Council, Mohsen Rezaei, in an effort to restart peace negotiations. Furthermore, Qatari mediators presented Iran with a new draft deal to end the war with the US and Israel. However, investors remain wary amid escalating hostilities between Houthis in Yemen and Saudi Arabia.

Meanwhile, Iran's navy claimed Thursday that four oil tankers had struck sea mines in the Strait of Hormuz, adding to worries about supply disruptions in the Middle East. The uncertainty remains supportive of elevated crude oil prices, fueling inflationary concerns and bolstering hawkish US Federal Reserve (Fed) expectations. This could help limit USD losses and cap any meaningful gains for the EUR/USD pair.

According to CME Group's FedWatch Tool, traders are currently pricing in around a 75% chance that the US central bank will raise borrowing costs again in December. The bets were reaffirmed by Thursday's US macro data, which showed that economic growth accelerated to a 3.4% annualized pace during the July-September quarter and Inflation continued to run above the central bank's 2% target in September.

The aforementioned fundamental backdrop backs the case for the emergence of some USD dip-buying, making it prudent to wait for strong follow-through buying before confirming that the EUR/USD pair has formed a near-term bottom and positioning for further gains. Traders now look to the euro area's first estimate of third-quarter GDP growth and consumer inflation figures for short-term opportunities.

EUR/USD 4-hour chart

Technical Analysis

The EUR/USD pair stalls its recovery move near the 100-period Exponential Moving Average (EMA) on the 4-hour chart. The failure to reclaim this EMA suggests spot prices remain capped in the short term despite the recent repeated rebounds from the vicinity of the 1.1100 round figure. Hence, a sustained break above the 100-period EMA at 1.1211 would be needed to ease downside pressure and allow for a more constructive recovery phase.

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