EURUSD breaks higher: Fed-ECB path to drive 3rd wave to 1.19?

EURUSD is trading above 1.17 on the 4-hour chart after the dollar fell to a 2-month low following Wednesday's Fed rate cut. With a potential running triangle breakout in play and a dovish Fed facing a stable ECB, the pair is eyeing the 2025 high at 1.1920 and potentially new peaks into 2026.

In this video, we break down why Powell's dovish tone and a deeply divided Fed are narrowing the rate differential with the ECB, which might upgrade growth and proceed with no cuts in 2026. Then, we map out the wave structure: a potential 3rd wave impulse targeting 1.18–1.19, with buy-the-dip zones at 1.17 and 1.1650, and larger projections toward 1.2020–1.2220 from a cup-and-handle pattern.

Key drivers

• Fed cut and Powell dovish: The Fed cut rates on Wednesday, where Powell emphasised a "wait-and-see" mode, pretty much ruling out hikes in 2026; markets now price two more cuts despite the official dot plot projecting only one.​​
  
• Deeply divided Fed: The December dot plot showed four members see no cuts in 2026, four see one, four see two, and three expect rates below 3% by year-end 2026, while three actually wanted to hike — No consensus.​
  
• ECB stability and growth upgrade: ECB President Lagarde said the eurozone economy shows "remarkable strength" and the ECB may upgrade growth forecasts at the December 18th meeting, with policy in a "good position" (i.e., no cuts).​
  
• Rate differential narrowing: The Fed is at 3.50–3.75% and cutting, the ECB is at 2.00% and on hold. Markets now price only a 45% chance of an ECB cut by September 2026, narrowing the spread in favour of the euro.​

Technical structure: EURUSD has broken out of a running triangle with a breakout level around 1.1580–1.1600. The current leg appears to be a third-wave impulse targeting 1.18–1.19, with a larger cup-and-handle projection pointing to 1.2020–1.2220.

Trade plan: Buy pullbacks into 1.17 (50% Fibonacci retracement) or 1.1650 (deeper support) with a stop below 1.1580, targeting 1.18, 1.19, and potentially 1.20+; invalidation below 1.1580 would suggest a corrective structure instead.

Trading the EURUSD breakout? Share your entry levels and wave counts in the comments and follow for more Fed-ECB divergence and technical trade setups.

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