EUR/USD is currently positioned between 1.176 and 1.179, hovering just below the 1.1800 resistance level following a steady ascent. Meanwhile, the DXY remains in the vicinity of 97.9 to 98.1, facing resistance below approximately 98.70. The pair is navigating within a rising channel on the medium-term charts: the 50-EMA at approximately 1.1745 serves as the initial dynamic support, while the 100-EMA around 1.1705 represents the more substantial structural line. As long as 1.1740–1.1705 holds, the market remains constructive, not exhausted. A clean daily close above 1.1850 alters the outlook and paves the way for a move toward 1.1950–1.2000. Conversely, a break and close below 1.1705 would trigger a test of 1.1650–1.1600, and in the event of a macro shock, the 1.13 area, which is positioned at the lower end of 2026 institutional scenarios, would come into play. The Federal Reserve has transitioned from a peak-hawkish stance to implementing an active easing cycle. In 2025, three reductions lowered the federal funds target range from 4.50% in March to 3.50–3.75% by December. Futures markets currently indicate the likelihood of at least two further cuts in 2026, suggesting a target range of 3.00–3.25% should the forthcoming data align favorably.
The Fed’s own projections continue to suggest just a single cut; however, the market is responding to the cooling of realized inflation, a slowdown in labor momentum, and a political environment that is clearly advocating for more accommodative policies as Powell’s term approaches its conclusion in May 2026. A newly appointed chair in that context presents a structural challenge for the dollar: each 25-bp reduction diminishes the interest rate differential with the euro and undermines the premium that bolstered the greenback in 2022–2023. The European Central Bank remains in a state of intentional inaction regarding the euro. In November, Eurozone inflation recorded a year-on-year increase of 2.2%, rising from the previous 2.1%. Services inflation stood at 3.5%, while energy prices showed a slight decline. The combination maintains the headline above the 2% target, while the persistent services element constrains the ECB’s ability to implement easing measures. Current policy rates remain unchanged: the deposit rate stands at 2.00%, the main refinancing rate is at 2.15%, and the marginal lending rate is at 2.40%. Revised forecasts indicate that inflation is expected to move steadily towards the target over the next three years. The communication from Frankfurt is clear: the current policy stance is favorable, with no immediate urgency to implement cuts and no pressing requirement for increases. Street surveys reflect that perspective, with the majority of economists anticipating stable ECB rates until 2026, and only a broad, low-confidence range for 2027. In terms of rate spreads, this indicates that the gap is narrowing due to the Fed’s downward movement, rather than the ECB’s upward shift, which systematically weakens the dollar’s carry advantage against EUR/USD.
The macroeconomic growth in the Eurozone exhibits weakness, yet it remains intact. The bloc recorded a growth of 0.2% quarter-over-quarter in the third quarter, with Spain achieving 0.6% and France at 0.5%, whereas Germany and Italy remained unchanged. The European Commission anticipates a growth rate of 1.3% for 2025, followed by 1.2% in 2026, and a slight increase to 1.4% in 2027. The profile lacks excitement, yet it is certainly not indicative of a recession. The upward revision for 2025 and the slight adjustment for 2026 indicate a more volatile near-term path; however, they affirm that there is sufficient baseline demand to avert a systemic euro collapse. The current “muddle-through” trajectory is precisely what prevents EUR/USD from behaving like a crisis currency, despite headlines highlighting manufacturing pressures and energy uncertainties. The primary macro concern for EUR/USD lies not in domestic demand but rather in trade conflict. A tariff package of 10–20% imposed by the US on EU exports directly impacts the euro area’s most vulnerable sectors: automobiles, chemicals, and certain segments of capital goods. Exports from the Eurozone to the US have been noted to decline by approximately 3%, and an increase in tariffs is expected to drive growth down beneath the 1.3% baseline. In that environment, the ECB’s “patient” approach becomes increasingly difficult to uphold; a mix of declining activity and political demands for assistance would steer the Governing Council towards a more accommodative stance. The trajectory suggests a return to 1.13, with a heightened risk of descending into the 1.10 range should tariffs prove to be both aggressive and enduring. The downside scenario is indeed present; however, it necessitates both a trade shock and a definitive indication that the ECB is moving away from its current “on hold” stance. The DXY’s movement from approximately 97.74 back toward the 98.0–98.1 range appears to be corrective rather than impulsive. The index faces resistance at the 100-EMA around 98.70, with buying interest diminishing swiftly near the 38.2% retracement range of 98.12–98.24.
The recent increase has successfully regained the 23.6% Fibonacci level at 97.98; however, momentum appears to have already plateaued. Unless the DXY can reclaim and hold above approximately 98.35–98.70, the primary scenario continues to suggest a sideways-to-lower trend, with the potential risk of another decline to 97.74 and possibly 97.55 if selling pressure resumes. For EUR/USD, that context supports a gradual increase rather than a new surge in dollar strength; the pair is essentially trading within an index that is facing challenges beneath its own moving-average resistance. The present price movement is influenced by limited liquidity as we approach the year’s end. The 1.1800 level is clearly presenting a near-term challenge where upward movements consistently falter. However, the more significant indication lies in what is absent: EUR/USD is not facing strong selling pressure to drop below the 50-EMA at 1.1745 or the 100-EMA at 1.1705. The pair is stabilizing at the upper end of its recent range instead of retreating into the mid-1.16s. A daily close above 1.1850 would indicate a breakout from this holiday range and shift attention towards the 1.1950–1.2000 levels. A daily close below 1.1705 would indicate that the Fed–ECB spread narrative is currently fully priced in, suggesting that new macroeconomic or political factors are beginning to influence the situation. Market expectations for EUR/USD through 2026 are distinctly divided into two clear factions. One group anticipates a resurgence in dollar strength, forecasting a level of 1.10 based on the premise that US growth will re-accelerate and the Fed will ultimately implement fewer cuts than what the market currently anticipates. The alternative group focuses on the contracting yield differential, projecting a level of 1.20 by mid-2026, contingent upon the ECB maintaining its current stance while the Fed pursues further easing measures. The current level around 1.17–1.18 represents the market’s active balance between the two extremes. It reflects a certain contraction of the spread, a degree of Eurozone stability, and some exposure to tariff risks, yet it does not capture the complete potential of an ideal “Fed cuts + Europe navigates successfully” situation. At current levels, the risk–reward profile supports a bullish outlook on EUR/USD.
The pair is currently positioned beneath the upper consensus band (1.20) and well above the lower band (1.10–1.13). The technical framework supports this outlook: higher lows are forming above 1.17, key moving averages are trending upwards, and the DXY is constrained by its own EMA resistance. The upcoming catalyst for early 2026 is evident: the confirmation of the next Fed chair, the inaugural Fed meeting of the year, and the forthcoming Eurozone inflation and growth data releases. Each of these events holds greater potential to strengthen the theme of rate-gap compression rather than to reverse it, unless the data or appointments are significantly hawkish for the dollar or exceptionally weak for Europe. Over a 6–12 month outlook, EUR/USD presents a BUY opportunity with a bullish inclination, rather than a neutral stance. The strategic map is clear: consider pullbacks into the 1.1740–1.1700 range as opportunities for accumulation, allow for fluctuations down to 1.1650 if tariffs or political news prompt short-term risk-off reactions, and aim for a base-case target in the 1.19–1.21 area by 2026 as the Fed implements cuts while the ECB maintains its position. This thesis holds true unless Eurozone growth falls significantly below the 1.3% baseline and the ECB indicates a real easing cycle, or if the US manages to avoid additional cuts and reestablishes its growth and rate leadership. Until that combination is reflected in the data, the existing hard data and rate mechanics indicate a preference for taking long positions in EUR/USD on dips, rather than shorting the euro at the current levels.