Why the EUR/USD Pair Presents a Compelling Long Position as the U.S. Dollar Weakens Amid Fed Easing and Eurozone Stability

The EUR/USD currency pair has emerged as a compelling long position in late 2025, driven by divergent monetary policy trajectories between the U.S. Federal Reserve and the European Central Bank (ECB), as well as contrasting macroeconomic fundamentals. With the U.S. dollar weakening amid a Fed easing cycle and the Eurozone maintaining relative stability, investors are increasingly positioning for a stronger euro. This analysis examines the interplay of policy, economic data, and speculative positioning to justify the case for a long EUR/USD trade.

Fed Easing and Dollar Weakness: A Structural Headwind

The Federal Reserve's December 2025 rate cut-lowering the federal funds rate to 3.50%-3.75%-marked the third consecutive reduction in 2025, with one more cut projected for 2026. This easing cycle, framed as a "risk management cut" to address labor market softness and inflation risks, has triggered expectations of further dollar depreciation. Market participants, including J.P. Morgan and Deloitte, anticipate two additional 2025 cuts and one in 2026, while Deutsche Bank and Goldman Sachs forecast a 3% decline in the U.S. dollar by year-end 2026. The Fed's forward guidance emphasizes data dependency, but the trajectory of rate cuts remains firmly in place, creating a structural headwind for the dollar.

Inflation remains a critical drag on dollar strength. The Fed's updated Summary of Economic Projections indicates core PCE inflation will stay above 2% until 2028, contrasting with the ECB's timeline for hitting its 2% target by the same year. This divergence in inflation dynamics-combined with the Fed's accommodative stance-has incentivized capital flows to higher-yielding currencies, including the euro.

Eurozone Stability: A Policy and Economic Anchor

While the Fed has shifted to easing, the ECB has maintained a neutral stance, keeping its key interest rate at 2.15% and signaling no immediate cuts. This stability is underpinned by the Eurozone's macroeconomic fundamentals. For 2025, the ECB projects GDP growth of 1.4%, supported by resilient domestic demand and a labor market that added 0.6% in annual employment. In contrast, the U.S. labor market has shown signs of strain, with unemployment rising to 4.6% in November 2025-the highest since 2021.

The Eurozone's inflation outlook further reinforces its policy credibility. The ECB's staff projections show headline inflation averaging 2.1% in 2025 and stabilizing at 2.0% by 2028, with core inflation (excluding energy and food) expected to decline gradually to 2.0% by 2028. This trajectory, combined with the ECB's reluctance to ease, has positioned the euro as a relative safe haven compared to the dollar.

Comparative Fundamentals: U.S. Growth vs. Eurozone Resilience

The U.S. economy, while posting robust Q3 2025 GDP growth of 4.3%-the strongest in two years-faces structural challenges. A weakening labor market and elevated inflation expectations have eroded the dollar's appeal. Meanwhile, the Eurozone's 1.4% annual GDP growth and stable unemployment rate of 6.3% highlight its resilience. This contrast is critical: the Eurozone's stability provides a floor for the euro, while the U.S. dollar's weakness, driven by Fed easing, creates upward potential for EUR/USD.

Market Positioning: Speculative Bets and Sentiment Shifts

Speculative positioning data from the CFTC's Commitments of Traders report underscores the growing case for EUR/USD. As of November 26, 2025, non-commercial (speculative) net positions in Euro futures reflect cautious optimism. While the CFTC does not interpret positioning trends, the data reveals a shift in sentiment: speculative long positions in the euro have increased, suggesting growing confidence in its strength against the dollar.

Technical analysis also supports this view. The EUR/USD pair has tested key resistance levels near $1.1805 and $1.1860, with support identified at $1.1730. A breakout above $1.1805 could signal a broader trend reversal, particularly if the ECB maintains its rate stance and the Fed continues to cut. Options-implied data further reinforces this, with a median EURUSD rate of 1.10 for Q2 2026, indicating a structural bias toward the euro.

Conclusion: A Convergence of Policy and Positioning

The EUR/USD pair's long-term appeal stems from a convergence of macroeconomic and policy factors. The Fed's easing cycle and inflation risks are creating a structural headwind for the dollar, while the ECB's stability and the Eurozone's resilient growth provide a solid foundation for the euro. Speculative positioning, as reflected in CFTC data, aligns with this macro narrative, suggesting that the market is pricing in a sustained shift in favor of the euro. For investors, this divergence presents a compelling opportunity to capitalize on the dollar's weakening and the euro's relative strength.