EUR/USD rallied above the 21-DMA then struck a 5-session high Friday, but investors are waiting for the Fed to see if bullish influences from yield spreads and technicals are validated.

U.S.
short-term rates markets have priced in a higher probability the Fed will cut 50bps next after three former Fed officials a indicated Click here for the Fed to begin its cutting cycle with 50bps.

German-U.S.
2-year yield spreads US2DE2=RR traded their tightest since May of 2023 into the weekend.

Terminal rate differentials for the Fed SRAM26 and the ECB FEIH6 also tightened towards 87bps.

Tighter spreads helped underpin EUR/USD which helped keep bullish technical signals in place.

Rising daily and monthly RSIs imply upward momentum is in place and EUR/USD's hold above the 5- and 21-DMAs add to bullish signals.

A bull flag continuation pattern is in place on daily charts.
A break of the flag's top indicates completion of the pattern and suggests EUR/USD could rally above 1.1500.

The Fed meeting next week is the key risk for investors.
A rate decision will be made and the latest Summary of Economic Projections will be released.

A surprise 50bps cut and lowered rate forecasts could sink the U.S. rate complex and the dollar, potentially fueling a large EUR/USD rally.

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