## Gains and Losses Equation: Who Loses Market Confidence First in the Euro and Dollar Race?

When the EUR/USD pair moves between levels **1.1550 and 1.17**, it’s not about random numbers on the screen, but a real battle between two of the world's strongest economies. The US has an actual interest rate close to **4%** compared to **3.25%** in the Eurozone, and this gap alone is enough to attract investor funds toward American assets. However, the story is deeper than just interest rate differentials; there is a genuine contest for confidence between different monetary policies and mismatched economic risks.

## US Economy Strength vs. European Activity Weakness

The US economy grew over **2.1%** in the first half of 2025, supported by steady consumption and strong demand for goods. The unemployment rate fell to **4%**, while the Personal Consumption Expenditures (PCE) index remained at **2.9%**, slightly above the target.

On the other hand, Germany, the largest economy in the Eurozone, saw industrial production decline by **0.3%** in September. Purchasing Managers’ Indexes (PMIs) slipped below **50 points** for four consecutive months. France suffers from unemployment stuck at **7.5%** and retail sales decreasing by **0.4%** monthly. This structural gap is what maintains the dollar’s strength despite geopolitical pressures on the US economy.

## Divergent Central Bank Stances: Who Will Step First?

The European Central Bank (ECB) chose to pause and keep interest rates steady in October for the third consecutive time, citing that current inflation at **2.6%** remains above the **2%** target. ECB President Christine Lagarde did not close the door on a possible rate cut but emphasized the need for more certainty.

Analysts are divided on the timing of the European rate cut: Deutsche Bank expects the first move in mid-2026, while ING sees a limited cut possible at the end of 2025 if inflation recedes quickly.

In contrast, the US Federal Reserve is moving more boldly toward a gradual easing cycle. Futures data show expectations of a possible cut in December 2025. This pace difference between the two central banks is the main driver of EUR/USD movement.

## The Hidden Impact of Geopolitical Crises

The Russia-Ukraine war has cast tangible shadows over Europe. Natural gas prices rose by **12%** in October 2025, driven by an early cold wave and reduced supplies from Norway. The International Energy Agency warns that this increase could add **0.3 to 0.4 percentage points** to European inflation by year-end.

European governments increased defense spending by an average of **7%**, shifting resources from productive investment to defense, which weakened European competitiveness in the medium term.

Meanwhile, the dollar benefits from its role as a "safe haven." When geopolitical tensions escalate, investors automatically return to US assets. When tensions in the Black Sea increased in October, the dollar index rose by **1.2%** over a week, while the euro slipped to **1.1570**.

## What Does Technical Analysis Say?

EUR/USD is moving within a horizontal consolidation range between **1.1550 and 1.1700**. Major support levels are at **1.1367** and **1.1186**, while resistance levels are at **1.1711** and **1.1913**.

The Relative Strength Index (RSI) hovers around **40**, indicating a lack of a strong trend. The MACD shows a weak bearish crossover. Data from the Commodity Futures Trading Commission (CFTC) reveal that speculative positions on the euro decreased by **12%** in October, indicating a decline in optimism.

However, the Sentix investor confidence index for November showed a slight improvement in eurozone investor sentiment after four months of contraction, which could provide temporary psychological support.

## Three Scenarios for the European Decision in December

**Scenario 1: Surprise Rate Cut**

If the ECB cuts rates by **25 basis points** in December while the Fed delays its decision, this could immediately pressure the euro. Eurex futures price in a **35%** probability of a December cut. ING expects EUR/USD to fall toward **1.14** in the short term before recovering in early 2026.

**Scenario 2: Hold with a Dovish Tone**

If the ECB maintains rates at **4%** with clear signals of a cut in Q1 2026, this could be seen as a "verbal easing." Deutsche Bank analysts expect a gradual rise toward **1.17** in the following weeks, especially if US labor market data weaken.

**Scenario 3: Continued Hawkish Stance**

If the ECB insists on a hawkish stance until mid-2026, EUR/USD may temporarily support but will deepen the economic crisis in southern countries and put downward pressure on the currency later.

## Yield Differentials: The Decisive Factor

The gap between actual US and European yields has always been the main driver. The yield on 10-year German bonds approached **2.3%** in October, while US Treasury yields stood at **4.1%**.

This differential creates a "short-term window" that the euro can exploit to recover losses, especially if markets continue pricing in a faster US rate cut than Europe.

## The Final Equation: Dollar Has the Edge but Not Dominance

The dollar retains a relative advantage due to yield differentials and high liquidity, but it no longer holds absolute dominance as in the past. The euro suffers from structural weakness but finds support in future expectations of gradual improvement.

The **1.15-1.18** range will likely dominate until the end of 2025, with limited chances for strong breakthroughs unless monetary tone shifts dramatically. The most important question is not where the pair is headed, but which currency will lose market confidence first in its ability to withstand shocks.

If clear signs of recession appear in the US, the dollar will be the first to decline. Conversely, if European activity remains weak and crises escalate, the euro will be the biggest loser.

Ultimately, euro forecasts in the coming days will depend on who maintains market confidence longer: the structurally weaker US economy or the European economy facing geopolitical and energy challenges.