EUR/USD opened the week quietly, effectively unchanged from Friday's close. Late last week euro buyers tried to build a corrective advance off support at 1.1360 (the lower Bollinger Band on the 4-hour chart), lifting the pair to 1.1412, but failed to hold into the 1.14s. The northward impulse faded, and sellers failed to retake control, leaving the pair stuck in a 1.1360–1.1430 range (the 4-hour Bollinger Bands).

According to fundamentals, the case for a stronger dollar looks robust, which should weigh on EUR/USD. The September Fed meeting outcome was not merely hawkish but ultra-hawkish: the central bank not only raised the policy rate but effectively signaled further tightening. In the days since the meeting, several Fed officials (Williams, Barr, Collins, Polson, Hammack, and Barkin) have explicitly said another rate increase will likely be necessary.

Against that backdrop, US PMI surprised on the upside: the composite indicator jumped to 58.4, a five-year high. Unlike recent months when services drove growth, the manufacturing index returned strongly in September (58.7). Domestic demand pushed new orders higher in both the manufacturing and services sectors, and hiring strengthened.

In other words, the stars truly aligned for the dollar: macroeconomic signals resonated with the Federal Reserve's hawkish verbal cues.

However, dollar bulls were unable to fully capitalize on that alignment. The US dollar index tested the 101 level but failed to hold there, retreating toward the 100 area (DXY is currently hovering around 100.8). EUR/USD sellers, for their part, could not push below the 1.1360 support (the lower Bollinger Band on the H4 chart), and the pair became stuck in the 1.1360–1.1430 range.

A reasonable question arises: why did the dollar stall and even retreat a bit if the fundamental picture favored a further rise?

In my view, the market outplayed itself. The point is that traders interpreted the Fed's hawkish signals not as the announcement of a single additional hike, but as the start of a full tightening cycle. According to the CME FedWatch tool, the probability of a rate increase at the October meeting is now estimated at roughly 70%, while the chance of an additional step in December is about 51%. Figuratively speaking, "appetite comes with eating": the market began to price a scenario of two additional hikes by the end of the year.

The problem is that even the updated September dot plot does not imply such an aggressive scenario. The median projection of Committee members points to a funds rate of 4.1% at the end of 2026 and the same level at the end of 2027. In other words, after the September decision, the consensus points to only one additional 25-basis-point hike this year, followed by holding that rate through 2027.

So, the market has pushed expectations well above the Fed's official guidance. Those inflated expectations are now working against the greenback. For the dollar to sustain further meaningful gains, new and fairly powerful information drivers are required to justify not one but multiple rate increases.

Primarily that means core PCE and the US labor market. If Core PCE accelerates more than forecast, and nonfarm payrolls again show robust job growth, market participants will begin re-discussing the prospects for two rounds of tightening. But if the key data print at consensus, or worse, in the "red" zone, overheated market expectations will rapidly deflate. In that case even the October hike—currently priced at roughly 70%—could be called into question.

Thus, the pair is currently stuck at a point of fundamental equilibrium. The dollar retains the advantage, but to drive (resume) a sustained southward move in EUR/USD, additional and quite weighty arguments are necessary. The upcoming macro releases are capable of determining the pair's direction: either it will fall toward the base of the 1.13 area, or it will rise toward resistance around 1.1460 (the Tenkan-sen on D1), with the subsequent prospect of testing the 1.15 area.

Given such uncertainty, a wait-and-see stance is prudent. The scales can tip either toward further dollar strength or toward its correction. In the coming days key macroeconomic statistics—not already-priced Fed signals—will become the primary reference for EUR/USD traders. Until new information drivers appear, the pair will most likely exhibit nervous trading within the range noted above.