EUR/USD Bearish Breakout and Fed Policy Outlook: A Short-Term Trading Strategy Analysis

The EUR/USD pair has entered a critical phase in late 2025, with technical indicators and macroeconomic catalysts aligning to reinforce a bearish outlook. For short-term traders, the Supertrend indicator, combined with evolving Federal Reserve policy expectations, offers a compelling framework to navigate this volatile landscape.

Technical Analysis: Supertrend and Key Levels

The EUR/USD has remained below the Supertrend indicator, a bearish signal that has persisted since November 2025. This alignment is supported by a classic head-and-shoulders pattern, with the right shoulder forming at 1.1500 and the neckline at 1.1385. A breakdown below this neckline would target the next key support level at 1.1467. Additionally, the pair has fallen below the 50-day EMA, a critical technical threshold that amplifies downward momentum.

While the 14-day Relative Strength Index (RSI) at 53.7 suggests a neutral stance, the ADX has turned downward, signaling waning bullish momentum. This divergence between RSI and ADX underscores a potential exhaustion of buyers, reinforcing the bearish case. Traders should monitor the 1.1665 resistance level, as a sustained move above this threshold could invalidate the bearish scenario.

Macroeconomic Catalysts: Fed Policy and Market Sentiment

The Federal Reserve's December 2025 policy outlook remains a pivotal factor. The FOMC meeting scheduled for December 9-10 will assess whether a rate cut is warranted. At the October meeting, the Fed reduced the federal funds rate by 25 basis points to 3.75%-4.00%, citing a "data-dependent" approach. However, recent statements from Fed Chair Jerome Powell have introduced uncertainty, with Powell emphasizing that a further cut in December is "not a foregone conclusion."

Market expectations are split: Goldman Sachs Research projects a December cut as part of its baseline forecast, while the latest CME FedWatch data assigns a 41% probability to a rate cut. This ambiguity reflects conflicting economic signals. On one hand, the labor market remains resilient, with 119,000 jobs added in September and an unemployment rate of 4.4%. On the other, inflation has edged higher to 3%, complicating the Fed's mandate to return to 2%.

The euro's weakness against the dollar is also influenced by divergent monetary cycles. The ECB has signaled a more hawkish stance compared to the Fed, creating a tailwind for the dollar. If the Fed opts for a December cut, the EUR/USD could accelerate toward 1.1040, as suggested by broader wave analysis.

Short-Term Trading Strategy

For traders, the EUR/USD's bearish setup offers multiple entry points. A key strategy involves entering short positions below the 1.1500 level, with a stop-loss placed above the 1.1665 resistance. The Supertrend indicator can act as a dynamic stop-loss tool, exiting positions if the price closes above the indicator line.

Additionally, traders should monitor the Fed's December decision. A rate cut would likely trigger a short-term rebound in the dollar, pushing the EUR/USD toward 1.1385-1.1467. Conversely, a decision to hold rates could reignite bearish momentum, testing the 1.1040 level. Position sizing should account for the ADX's weakening trend, as fading momentum may limit the depth of the decline.

Conclusion

The EUR/USD's bearish breakout, supported by the Supertrend indicator and macroeconomic divergences, presents a high-probability trade for short-term traders. However, the Fed's December policy decision remains a wildcard. By combining technical signals with macroeconomic insights, traders can navigate this volatile phase with disciplined risk management.