EUR/USD Weakness and Strategic Entry Points in a Divergent Policy Environment

The EUR/USD pair has long been a barometer of global monetary policy divergences, and the current landscape in Q4 2025 is no exception. With the European Central Bank (ECB) maintaining a neutral stance while the Federal Reserve (Fed) accelerates its easing cycle, the exchange rate has oscillated near critical levels, creating both opportunities and risks for traders. This analysis examines the interplay between policy divergence and technical breakdowns to identify strategic entry points for short-term bearish positioning.

Fundamental Divergence: ECB Holds, Fed Eases

The ECB's decision to keep interest rates unchanged at 2.15% according to analysis contrasts sharply with the Fed's aggressive easing, which has cut the federal funds rate by 75 basis points in 2025, bringing it to 3.50%-3.75% as reported. While the ECB's staff projections suggest inflation will remain near 2% through 2026 based on forecasts, the Fed's dovish pivot reflects weaker U.S. labor and inflation data as indicated. This divergence has historically supported the euro, pushing EUR/USD toward 1.18. However, the short-term outlook is clouded by the Fed's anticipated two additional rate cuts in 2026 as analysts note, which could erode the euro's gains if the U.S. dollar regains strength.

Technical Breakdowns: A Bearish Catalyst

Despite the fundamental backdrop, technical analysis reveals a critical juncture for EUR/USD. The pair has tested the 1.1700 support level repeatedly in late 2025, with mixed signals emerging from price action and indicators. A bearish MACD crossover has signaled waning momentum after a multi-week rally from 1.15–1.16 to 1.17–1.18 as observed. While the 14-day RSI remains bullish at 61.63 according to data, the nine-day EMA's position above the 50-day EMA as shown suggests buyers are still defending pullbacks.

The key question is whether the 1.1700–1.1710 support zone will hold. A breakdown below this level could trigger a deeper correction toward 1.1648, with further downside risks to 1.1615 as forecasted. On the 4-hour chart, the RSI's inability to return above 50 and the MACD's bearish bias reinforce the likelihood of a pullback. Analysts caution that a weekly close below 1.1679 would negate the bullish structure and shift focus to 1.1640 as projected.

Strategic Entry Points for Short-Term Traders

For traders seeking to capitalize on EUR/USD's volatility, the following levels warrant close attention:
1. 1.1700–1.1710: A sustained break below this zone would validate bearish momentum, offering entry points for short positions with a target at 1.1648 as reported.
2. 1.1730–1.1740: A defensive level where buyers may re-enter if the pair consolidates, but a breakdown here would expose 1.1700 as analyzed.
3. 1.1800: A psychological resistance level that, if rejected, could trigger a countertrend rally. However, a failure to hold above this level would reinforce the bearish bias.

Conclusion: Navigating the Divergence

The EUR/USD's short-term trajectory hinges on the ECB's policy neutrality and the Fed's easing trajectory. While fundamentals suggest a structural bias toward a weaker dollar, technical breakdowns at key support levels could override this narrative in the near term. Traders should monitor both policy developments and price action at 1.1700–1.1710 to determine whether the correction is a temporary pause or the start of a deeper downtrend. In this divergent environment, disciplined risk management and precise entry points will be critical for navigating the EUR/USD's volatility.