The EUR/USD pair is currently positioned within the 1.17–1.18 range, with spot and futures pricing concentrated around 1.1740–1.1760, following an unsuccessful attempt to maintain a breakout above the 1.1800–1.1805 level. The pair has established a new weekly low close to 1.1740, while the US Dollar Index remains around 98.2–98.3, limiting any significant upward movement for the Euro but also not facilitating a clear downward break as buyers protect the 1.17 level. In the near term, there is a measured pullback from the 1.1794 swing high, rather than a significant decline. The primary macroeconomic factor influencing EUR/USD is the Federal Reserve’s shift in policy. Following three reductions in 2025, the policy band currently ranges from 3.50% to 3.75%, reflecting a cumulative easing of 75 basis points this year. Minutes from the December FOMC meeting indicate a divided committee: It is widely acknowledged among members that additional rate reductions are probable in 2026, contingent upon a continued decline in inflation and a softening labor market. However, a minority advocates for a pause following this year’s cumulative cuts to prevent further harm to the job market. Markets are currently factoring in at least two further 25 bps cuts in 2026 – translating to over 50 bps of additional easing – which inherently diminishes the Dollar’s yield advantage and bolsters EUR/USD in the medium term. In the short term, the Fed’s “wait for more data” language provides the Dollar with sufficient support for corrective rebounds, as seen in the current movement off the lows.
Regarding the Euro, the ECB’s approach is intentionally uneventful — and this is precisely what currently restricts the downside potential in EUR/USD. Given that Eurozone inflation is hovering near the 2% target, the central bank appears to lack immediate impetus to take action at the beginning of 2026. The primary scenario anticipates no early-year rate reductions, particularly as the Eurozone sidesteps a severe downturn and wage growth moderates without plummeting. Country data supports that narrative: Spain’s December CPI increased by 0.3% m/m (up from 0.2%) with a year-over-year change of 2.9%, just slightly below the previous 3.0%. The harmonised index recorded a monthly change of 0.3%, with the annual rate decreasing to 3.0% from the previous 3.2%. The interplay of persistent yet gradually declining inflation provides the ECB with the opportunity to maintain its current stance, while placing the emphasis on the narrative surrounding rate differentials, which will likely be influenced more by additional cuts from the Fed than by an abrupt shift from the ECB. In the case of EUR/USD, it indicates that the issue does not lie with Euro policy; rather, the risk is primarily associated with fluctuations in the Dollar rather than any inherent weakness in the Euro.
The most recent data from the US indicates that we are not in a “recession now” scenario; instead, it reflects a slower yet resilient economy. This situation is sufficient to maintain the Federal Reserve’s cautious stance, but it lacks the strength to foster a bullish trend for the Dollar. Housing remains resilient: – The FHFA house price index for October reported a 0.4% month-over-month increase, significantly surpassing the 0.1% consensus expectation. The S&P/Case-Shiller index recorded a year-over-year increase of 1.3%, surpassing the anticipated 1.1%. – Pending home sales increased by 3.3% month-over-month, surpassing the forecast of 1.0% and the previous figure of 2.4%. Simultaneously, business activity continues to show weakness: the Chicago PMI rose to 43.5 from 36.3, surpassing the anticipated 39.5, yet remains firmly in contraction territory (<50). The net effect indicates that the mix of US data substantiates the cuts that have already been implemented and reinforces the notion of further easing in 2026, particularly if labor data, such as weekly jobless claims approaching 220k, validates a gradual cooling trend. The current environment for EUR/USD suggests that a prolonged rise in the Dollar is unlikely, supporting a strategy of purchasing on dips above 1.17 instead of pursuing Dollar strength. Intraday, EUR/USD is exhibiting a corrective down-sloping channel on the short-term charts following its peak in the range of 1.1794–1.1805. In the 60-minute perspective, the price has dipped beneath the 100-hour moving average, while the 14-period RSI is trending down towards oversold levels, indicating a diminishing downside momentum rather than an impending trend failure. Short-term levels are well-defined: – Immediate resistance: the 1.1794–1.1833 zone, where previous supply and intraday moving averages intersect. – Initial support levels are identified at 1.1705, followed by 1.1662 within the intraday channel’s lower boundary.
On the 2-hour setup, the pair has fallen below the fast 50-EMA, yet remains above the ascending 200-EMA around 1.1705. The current situation reflects a typical correction: short-term momentum has slowed, while any significant structural damage remains contained as long as the 1.1700–1.1705 range is maintained. One of the short-term models indicates that EUR/USD has breached a previous rising trend line and is now trading beneath the 50-period EMA. Momentum indicators are presenting new negative signals, even as they approach oversold territory. This indicates two key points: – The recent micro up-leg from the lows has concluded; the market is now in a corrective phase, with aggressive dip-buyers losing their grip on control. – Second, the oversold readings at these levels heighten the likelihood of a stabilization bounce off 1.1705–1.1660, rather than a straightforward breakdown. Daily structure: ascending channel, moving averages and significant levels for EUR/USD On the daily chart, the structure remains favorable. The EUR/USD is currently positioned between 1.1740 and 1.1750, maintaining its trajectory within an ascending channel that has propelled the pair upward from the low-1.04s earlier in the cycle. The price is currently positioned above the 20-day EMA at 1.1724, which is on an upward trajectory, indicating that any pullbacks are being purchased over a multi-week timeframe. Momentum has moderated: the daily RSI has retreated from overbought levels, currently positioned in the high-50s to low-60s range based on previous readings, indicating a pause rather than the initiation of a downtrend. Essential daily levels for EUR/USD are: – Immediate support levels include 1.1724 (20-day EMA), followed by 1.1700–1.1705, with further support at 1.1570 and 1.1379 representing the lower channel and previous reaction lows. – Upside references: 1.1805 as the initial resistance level, followed by 1.1920 and 1.2098 as medium-term objectives within the current bullish range. Provided that spot maintains a position above 1.1700 on daily closes, the prevailing pattern continues to reflect a rising channel characterized by corrective pullbacks rather than a reversal.
The DXY is currently positioned between 98.2 and 98.3, operating within a short-term rising channel, yet it remains significantly lower – approximately 9%+ year-to-date – as the Federal Reserve’s easing cycle impacts US yield spreads. On intraday charts, the index has successfully reclaimed the 98.13–98.25 Fibonacci pocket and is trading above its short-term 50-EMA, with the RSI positioned above 55 yet remaining below the overbought threshold. The characteristics observed indicate a counter-trend rebound for the Dollar, rather than the initiation of a new long-term uptrend. The Dollar continues to exhibit a degree of safe-haven attractiveness. During periods of risk aversion or position adjustments as the year concludes, capital continues to flow into the Greenback. This dynamic clarifies the challenges faced by EUR/USD in maintaining levels above 1.1800, even in light of a dovish Fed trajectory. The conclusion is that the Dollar possesses sufficient strength to limit Euro gains, yet it lacks the necessary power, considering the anticipated rate cuts in 2026, to push EUR/USD significantly below 1.17 without new macroeconomic disturbances. Additional disciplines corroborate the narrative. GBP/USD is currently positioned at approximately 1.3460, maintaining its trajectory within a rising channel, even as it dips below the short-term 50-EMA. Structural support is positioned around 1.3410, coinciding with the convergence of the 200-EMA and the channel base. This reflects a consistent trend: a deceleration in momentum while the overall uptrends remain unbroken. In that context, EUR/USD at 1.17–1.18 reflects a broader theme: the Dollar is attempting to recover from compressed levels, yet the medium-term structure across G10 FX continues to favor currencies supported by central banks that are easing at a slower pace than the Fed.