Euro Forecast: EUR/USD Lost 1% Last Week, Further Losses Ahead?

EUR/USD: Bearish near term, but downside may be moderated

The immediate bias is negative for EUR/USD. The pair’s roughly 1% weekly decline and close near 1.1486 indicate that the market is repricing the interest-rate advantage toward the US dollar. The Federal Reserve’s 25-basis-point hike to 3.75%–4.00%, combined with guidance implying another increase by the end of 2026, supports higher US yields and strengthens the dollar’s carry appeal.

ING’s risk of a move toward 1.1400 is therefore credible as a near-term scenario, particularly if US economic data remain firm, energy prices keep inflation concerns elevated, or markets begin pricing an October Fed hike. A decline through recent lows could also reinforce momentum selling and encourage further dollar demand.

The bearish case is not one-sided. Hawkish ECB communication creates a valuation and rate-policy floor under the euro: expectations of additional ECB tightening reduce the probability of an unchecked EUR/USD decline. This is why both ING and Crédit Agricole appear cautious about aggressively extending euro shorts rather than projecting a straight-line fall.

The medium-term signal is mixed. Crédit Agricole’s forecasts near 1.13 for December 2026 and March 2027 imply continued downside first, but its later projections toward 1.16–1.17 suggest that the euro could recover once the US rate advantage peaks or European policy tightening becomes more fully reflected in prices.

Key market mechanisms:

• US yields: Further repricing toward Fed tightening would favor USD and pressure EUR/USD.
• European rates: More ECB tightening would limit the euro’s downside by narrowing the expected policy gap.
• Energy prices: Persistently expensive energy is negative for Europe’s trade balance and competitiveness, while cheaper oil could reduce pressure on the euro and weaken the dollar’s inflation-supportive narrative.
• Sovereign risk: Renewed concerns over European credit markets could create an additional risk premium against the euro.
• Risk sentiment: A stronger dollar linked to higher yields could weigh on other dollar-sensitive currencies and broader risk assets, although the article does not establish a current cross-asset move.

The principal invalidation risk for the bearish view is a combination of softer US data, falling Treasury yields, lower energy prices, or clearer ECB tightening expectations. Traders should monitor US inflation and labor data, Fed communication, ECB guidance, energy prices, European sovereign spreads, and whether EUR/USD can stabilize above the 1.1400 risk area. Overall, the setup is short-term bearish but medium-term conditional, with ECB policy limiting the conviction of an extended one-way decline.