EUR/USD: A Strategic Buy as Dovish Fed Policy and Eurozone Stability Drive the Pair Higher

The EUR/USD pair has emerged as a compelling strategic buy in late 2025, driven by a confluence of dovish Federal Reserve (Fed) policy, Eurozone economic resilience, and shifting market positioning. With the U.S. dollar under structural pressure and the euro gaining relative strength, investors are increasingly turning to the pair as a hedge against policy divergence and macroeconomic uncertainty.

Dovish Fed Policy: A Tailwind for the Euro

The Fed's November 2025 policy statement marked a pivotal shift in tone, lowering the federal funds rate to 3.50%-3.75% and signaling a pause in further rate cuts for the near term. While the median FOMC projection still anticipates one rate cut in 2026, the central bank's emphasis on the current policy rate being in a "neutral range" has dampened expectations of aggressive easing. This cautious approach, combined with the resumption of asset purchases, has weakened the U.S. dollar. Analysts at BNP Paribas highlight that policy uncertainty, including potential political pressures, will likely reduce demand for dollar assets, with a 12-month EUR/USD target of 1.24. The Fed's dovish pivot contrasts sharply with the European Central Bank's (ECB) more stable policy environment, creating a favorable backdrop for the euro.

Eurozone Stability: A Pillar of Resilience

The Eurozone's Q3 2025 GDP growth of 0.2% quarterly (1.3% annualized) underscores its modest but consistent expansion, despite global trade tensions and looming U.S. tariff hikes. The ECB's decision to maintain its policy rate, with inflation at 2.1% in October 2025 reflects a focus on economic stability, over aggressive rate cuts. This cautious stance has bolstered the euro's appeal, even as growth remains tepid. The ECB's Autumn 2025 Economic Forecast projects steady growth of 1.3% in 2025, with a slight dip to 1.2% in 2026 before a recovery to 1.4% in 2027. Meanwhile, Germany's fiscal reforms-prioritizing infrastructure and defense spending-aim to address long-term structural challenges, potentially reinforcing the Eurozone's economic foundation according to LSEG analysis.

Market Positioning: Technical and Sentiment Indicators

Recent CFTC positioning data reveals a bullish shift in EUR/USD dynamics. Speculative net long positions in the euro have reached four-week highs above 123K contracts, while net short positions in the U.S. Dollar have climbed to two-week highs around 6.1K contracts. Technically, EUR/USD is testing key resistance at 1.1641, with a weekly close above this level signaling a resumption of the uptrend. The pair's consolidation above 1.1550 and a potential break of the 21 SMA at 1.1549 could target the 200 EMA at 1.1595. These indicators, coupled with reduced confidence in the dollar, amid delayed U.S. economic data releases, suggest a favorable risk-reward profile for buyers.

Strategic Buy Thesis: A Convergence of Factors

The EUR/USD's trajectory is being driven by a rare alignment of monetary policy and market sentiment. The Fed's dovish pause and the ECB's stability create a widening yield differential that favors the euro. Meanwhile, speculative positioning and technical levels reinforce the pair's upward potential. As BNP Paribas notes, the 1.24 target for EUR/USD is not merely a technical milestone but a reflection of structural shifts in global capital flows. For investors, this convergence presents a strategic opportunity to capitalize on a weakening dollar and a resilient euro, particularly as geopolitical and fiscal uncertainties persist.