The EUR/USD pair has increased from approximately 1.16440 prior to the recent Fed decision, reaching a peak above 1.18030. However, each attempt to maintain levels in the 1.18 range is met with selling pressure. The pair tested the 1.17030 level on both Wednesday and Friday, indicating that while buyers are willing to support dips, they lack the strength to achieve a decisive breakout. Consequently, the market is experiencing a gradual upward movement within a constrained range, rather than a clear trend. The current working range is characterized by support near 1.16850 and resistance around 1.17700, with 1.17100 serving as a key pivot point for intraday traders. The repeated failure to break above 1.18000 reinforces this level as a significant ceiling, maintaining the EUR/USD within a broader sideways structure that has persisted for months.
A sustained daily close below 1.16850 would jeopardize the recent sequence of higher lows starting from 1.16440, potentially reopening the path toward 1.16440 and subsequently 1.16000. Conversely, a clean and sustained breakthrough of 1.18000 would provide the first substantial indication that an upward movement toward the 1.18500–1.19000 region is feasible. The Invesco CurrencyShares Euro Trust FXE experienced an outflow of approximately $5.42M on December 18, representing about 1.25% of its $432.96M AUM. This indicates that strategic investors are reducing their euro exposure as the year concludes, rather than increasing risk. The spot EUR/USD is currently around 1.17128, reflecting a decline of only about 0.76% over the past three months. Additionally, short-term models continue to produce a one-day buy signal, suggesting that tactical traders remain inclined to purchase dips near 1.17, despite ETF investors cutting back on exposure. This divergence points to a recalibration rather than a complete risk-off stance against the euro.
The current Fed funds rate is positioned between 3.50% and 3.75% following three reductions of 25 basis points each. Meanwhile, the headline Consumer Price Index is approximately 2.7%, with core CPI at around 2.6%, trimmed-mean CPI near 2.9%, and sticky ex-shelter inflation also around 2.7%. This situation suggests a real Fed funds rate close to 1.2%. However, this figure is influenced by Owners’ Equivalent Rent, which constitutes 26% of the headline CPI, 33% of core CPI, and 44% of core services CPI. Given that authorities are currently relying on estimates for recent CPI components, there is a significant likelihood that actual inflation rates are higher, indicating that effective real rates may be near zero or even negative. Weak or structurally negative real USD yields present a medium-term challenge for the dollar and a potential upside for EUR/USD, despite the current price action remaining within a range. Speculative net long positions in US crude have surged from approximately 55K to around 584K contracts, indicating a significant shift in sentiment that typically corresponds with increased anticipated demand and reduced supply. Concurrently, gold is trading just under $4,350 per ounce and silver is near $67.50, both hovering around record highs, which suggests a market that may not fully endorse the long-term dominance of the USD as the sole store of value. US equities, with the NASDAQ 100 maintaining its position above the 25,000 mark after testing its primary uptrend line, reflect a risk-on sentiment that tends to diminish some of the safe-haven appeal of the dollar. Collectively, these cross-asset indicators suggest a resistance to a substantial EUR/USD decline and support the current stability above the low 1.17s.
Comprehensive trading statistics for key FX pairs, such as EUR/USD, indicate that a solid mechanical strategy, supported by approximately 300 backtested trades, can yield a win rate between 65% and 70%, alongside an average reward-to-risk ratio close to 2.3:1. In actual trading for 2025, 198 trades were executed, resulting in about 62% winners and a total profit of roughly 200R, with an average realized R:R of 2.36. performance declined significantly when the monthly trades surpassed approximately 15, whereas months with fewer, higher-quality setups near key levels yielded the best results; Monday trades indicated a win rate close to 44%, while the majority of profitable trades were observed during the Tuesday–Thursday and New York–PM sessions. Given the current thin year-end liquidity, this strongly suggests a more conservative trading approach, concentrating on clear levels such as 1.16850, 1.17100, and 1.17700, and aiming for realistic moves around 2.3R rather than pursuing every intraday spike within a narrow 50–70 pip range. The base case is established within a range of 1.16850 to 1.17700, identifying 1.17100 as an internal pivot and 1.17000 as psychological support. In this context, any dips into the 1.16850–1.17100 zone are likely to attract buyers, while movements into the 1.17700–1.18000 band are expected to encounter sellers, particularly as holiday liquidity limits sustained breaks. The bullish scenario necessitates a daily close above 1.18000, followed by stability, which could pave the way toward 1.18500–1.19000, especially if softer US data or more dovish Fed rhetoric prompts another decline in the dollar. Conversely, the bearish outlook begins with a decisive break below 1.16850 that holds, potentially pulling EUR/USD back toward 1.16440 and possibly the 1.16000 area if US data surprises to the upside or a risk-off shock renews demand for USD cash.