EUR/USD Breakout and the Implications of Rising Rate Cut Bets for Traders

The EUR/USD pair has emerged as a focal point for forex traders in 2025, driven by a confluence of technical momentum and shifting expectations around Federal Reserve (Fed) policy. With the euro climbing above $1.17 in late August—the strongest level since July 2021—market participants are recalibrating strategies amid a near-certainty of rate cuts in the coming months. According to a report by Forex.com, the CME Group’s FedWatch tool indicates a 97.6% probability of a 25-basis-point rate cut at the September 17 meeting, with markets pricing in a 55% chance of an additional cut by October [1]. This has created a unique environment where technical patterns and macroeconomic fundamentals are aligning to test critical levels for the pair.

Technical Breakout Potential and Positioning Dynamics

The EUR/USD has exhibited a textbook triangle consolidation pattern on the daily chart, with price action tightening between 1.1600 and 1.1620 in August 2025 [2]. Analysts at DailyForex note that a breakout above the 1.1700 psychological barrier could trigger a rally toward 1.1825, a level that would validate a bullish flag pattern [2]. Conversely, a breakdown below 1.1500 risks reigniting bearish sentiment, potentially extending losses to 1.1300 or lower [3].

Trader positioning data further underscores this volatility. The Commitment of Traders (COT) report reveals a surge in long positions by large speculators, signaling a pronounced bullish bias among institutional players [4]. This aligns with broader eurozone resilience, as the European Central Bank (ECB) maintains a hawkish stance compared to the Fed’s dovish pivot.

Strategic Position-Taking Amid Fed Policy Uncertainty

While the EUR/USD’s technical setup appears favorable for a breakout, traders must navigate the paradox of rate cuts already priced into the USD. LiteFinance analysts caution that a rising wedge pattern—typically a precursor to bearish reversals—has emerged as the pair approaches 1.1829 [4]. This suggests that even if the euro breaks out, prolonged bullish momentum may be constrained by profit-taking or a reversal in dollar weakness.

For strategic positioning, traders should consider a dual approach:
1. Bullish Plays: Aggressive long positions near 1.1600–1.1620, with tight stop-loss orders below 1.1500 to mitigate downside risk. Take-profit targets at 1.1825 and 1.1945 could capitalize on a Fed rate-cut-driven euro rally [2].
2. Bearish Hedges: Short-term hedges below 1.1500, particularly if the Fed’s September decision fails to meet market expectations. Historical data from Forex.com shows that the EUR/USD often weakens post-rate cuts if the USD’s strength is reinforced by improved U.S. economic data [3].

Macro Risks and the Paradox of Dovish Policy

The broader challenge for traders lies in the Fed’s dual mandate: balancing inflation control with labor market stability. Recent U.S. jobs data, which showed a cooling labor market, has reinforced rate-cut expectations but also introduced uncertainty about the USD’s direction. ING and Scotiabank project the EUR/USD to hover near 1.14 through mid-2025 before gradually rising to 1.15 by year-end [1]. However, this forecast assumes a smooth Fed transition to dovish policy, a scenario that could be disrupted by unexpected inflationary pressures or geopolitical risks.

A critical risk for traders is the potential for a “buy the rumor, sell the fact” scenario, where the EUR/USD initially rallies on rate-cut expectations but reverses once the cuts are implemented. Historical precedents, such as the 2023 rate-cut cycle, show that the USD can strengthen post-announcement if the cuts are perceived as insufficient to address inflation [3]. This paradox underscores the importance of dynamic risk management and real-time data monitoring.

Conclusion: Navigating the EUR/USD Crossroads

The EUR/USD stands at a pivotal juncture in 2025, with technical indicators and Fed policy expectations creating a high-probability setup for both breakout and breakdown scenarios. Traders must balance aggressive position-taking with disciplined risk management, particularly as the market digests the implications of multiple rate cuts. While the euro’s near-term trajectory appears bullish, the long-term outlook remains contingent on the Fed’s ability to navigate a fragile economic landscape without triggering a dollar rebound.

As the September 17 meeting approaches, monitoring the EUR/USD’s interaction with key levels—1.1700, 1.1500, and 1.1945—will be critical for strategic decision-making. In this environment of heightened volatility, adaptability and a nuanced understanding of macroeconomic interdependencies will separate successful traders from the rest.

Source:
[1] EUR/USD Forecast: The Euro Weakens Ahead of NFP, [https://www.forex.com/en-us/news-and-analysis/eurusd-forecast-the-euro-weakens-ahead-of-nfp/]
[2] EUR/USD Forex Signal 12/08: Ripe for a Breakout (Chart), [https://www.dailyforex.com/forex-technical-analysis/2025/08/eurusd-forex-signal-12-august-2025/232532]
[3] EUR/USD Broke Down Last Year When the Fed Cut, [https://www.forex.com/en-us/news-and-analysis/eur-usd-broke-down-last-year-when-the-fed-cut-could-a-repeat-scenario-happen]
[4] EURO/USD Futures Trade Ideas — BIST:EURUSDK2025, [https://www.tradingview.com/symbols/BIST-EURUSD1%21/ideas/?contract=EURUSDK2025]