<p>The EUR/USD pair is navigating one of the most interesting macro setups in years. The European Central Bank is firmly on hold at 2.00%, while the Federal Reserve is widely expected to continue cutting from its current 3.75% level. That narrowing rate differential is the single biggest driver of the euro in 2026.</p>

<h2>The ECB: Holding Steady</h2>
<p>The ECB Governing Council is expected to keep all three key interest rates unchanged at its April 29-30 meeting. The main refinancing rate sits at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%. President Christine Lagarde has signaled that policy is "in a good place," and with eurozone inflation hovering near 2.0-2.2%, there is no urgency to move in either direction.</p>
<p>However, the Middle East oil crisis has complicated the picture. Soaring energy costs are pushing European inflation higher, and markets now anticipate at least two ECB rate hikes in 2026 — a dramatic shift from pre-war expectations of potential easing.</p>

<h2>The Fed: Cutting Cycle Continues</h2>
<p>The Federal Reserve has already delivered three 25bps cuts since September 2025, bringing the federal funds rate to 3.50-3.75%. Most research desks expect two to three additional cuts in 2026, targeting a neutral zone of 2.75-3.00% by mid-year. The key question is how fast — and the answer increasingly depends on labor market data.</p>
<p>Weekly jobless claims recently came in at 199K versus 219K forecast, suggesting the labor market is tighter than a deep cutting cycle would normally require. This tension between employment strength and the Fed's dovish bias is keeping USD volatility elevated.</p>

<h2>What the Banks Say</h2>
<p>The institutional consensus clusters around EUR/USD at 1.20 by year-end 2026. Deutsche Bank is the most bullish at 1.25, citing Germany's historic fiscal stimulus program. Goldman Sachs targets 1.25 on fading US exceptionalism. Morgan Stanley sees 1.23 by spring before a pullback. Only Citi is bearish, projecting 1.10 on US growth re-acceleration.</p>

<h2>What It Means for Traders</h2>
<p>The near-term picture is complex. EUR/USD currently trades around 1.1540, well below consensus year-end targets. The gap represents either an opportunity or a warning that the consensus is too bullish. Key levels to watch: support at 1.1450-1.1500, resistance at 1.1640 and 1.1800. A break above 1.1800 unlocks the path to 1.20.</p>

<p><em>This article is for educational purposes only. Trading CFDs involves significant risk of loss.</em></p>