EUR/USD traded higher Friday, rebounding from a 13-session low as tighter German-U.S. spreads and EUR/JPY gains provided support. The pair’s ability to reclaim the 1.0500 level reflects a potential exhaustion in the recent downtrend, with rising German 2-year yields reducing the dollar’s relative advantage. Shorts are now looking to the Fed decision next week, with a widely anticipated 25bps rate cut and updated SEP likely to shape near-term direction. U.S. rates markets have priced out some 2025 cuts due to sticky inflation and robust growth, leaving the dollar vulnerable if the Fed delivers a dovish surprise.

Technicals signal a mixed outlook. The daily RSI divergence at the 13-session low hints at weakening bearish momentum, with immediate resistance at 1.0524 and the critical 1.0600/50 zone above. This resistance area includes the 21-day moving average and prior highs, presenting a key test for bulls. On the downside, support lies at 1.0450, with additional levels near 1.0400 should selling pressure resume. The pair’s recent stabilization above 1.0500 underscores the importance of spreads and technical factors in mitigating bearish risks.

Next week’s Fed decision and global PMIs will be crucial for EUR/USD. If the Fed surprises with dovish projections for weaker growth and slowing inflation, U.S. yields and the dollar could fall sharply, potentially driving EUR/USD toward the 1.0600/50 resistance zone. However, if the Fed emphasizes inflation risks or resilient growth, the dollar could regain strength, pushing EUR/USD back toward key support near 1.0450. The pair’s trajectory will hinge on how markets interpret the central bank’s guidance amid lingering uncertainties.