On December 12, EUR/USD is positioned near 1.173–1.174, following a rise to a 10-week peak in the 1.1750–1.1762 range, reflecting an increase of nearly 2% over the past three weeks. The pair has decisively moved beyond the 1.16–1.17 congestion band and is currently approaching a resistance cluster between 1.1760 and 1.1788. The market is evidently viewing dips toward 1.17 as opportunities to enter rather than exit. The shift is influenced by a decline in yield and policy premium associated with the US Dollar, rather than an abrupt enhancement in euro growth, indicating that the essence of this trend is rooted in the USD aspect of EUR/USD. The Federal Reserve has executed its third 25-basis-point reduction of 2025, adjusting the target range to 3.50%–3.75%. Official communication suggests approximately one additional cut in 2026; however, market participants appear skeptical of that guidance. Rate tools indicate a 58% likelihood of at least two cuts by October 2026, suggesting a more pronounced easing cycle compared to the dot plot.
Simultaneously, the labor data from the US is now indicating that the policy is having an impact. In early December, weekly jobless claims surged by 44,000, marking the most significant rise in over four years. This development serves as a clear indication that the labor market is experiencing a cooling trend, suggesting that restrictive policies are beginning to have detrimental effects on employment. The recent macro shifts have resulted in a structurally weak configuration for the US Dollar Index. The DXY is currently positioned between 98.20 and 98.34, marking a seven-week low while navigating within a descending channel that has directed the price downward since early December. The upper boundary of that channel is functioning as dynamic resistance, consistently limiting each rebound, while the short-term moving averages positioned above the price are trending downward. Support levels are identified at approximately 97.80 and subsequently at 97.47, both situated within the same channel. As long as DXY remains below approximately 98.76–99.24, the structural backdrop suggests potential further downside in the dollar, which would support a higher EUR/USD. The underlying impact on USD is now intensified by political factors. The recent 25-basis-point cut, coupled with public backing from the US President for further easing, has solidified expectations of a dovish stance, exerting direct pressure on the currency. Markets are anticipating a scenario where a more dovish figure like Kevin Hassett might eventually assume the chair, which investors view as a potential risk to the remaining carry advantage of USD. The combination of political noise and speculation regarding future leadership diminishes the perceived independence premium of the Fed, providing yet another rationale for investors to reduce their long-dollar exposure. On the euro side, the European Central Bank is not driving the move with aggressive tightening but is succeeding in the relative policy contest.
The ECB is anticipated to maintain rates during the December meeting, indicating that the easing cycle is effectively concluded for the time being. German HICP inflation is currently at 2.6% year on year, reflecting a monthly change of minus 0.5%. The ECB can leverage that combination to advocate for a more measured approach and a gradual timeline for cuts in contrast to the Fed. The divergence between an aggressive Federal Reserve and a conservative European Central Bank is sufficient to drive a consistent re-evaluation of EUR/USD, favoring the euro, even in the absence of remarkable growth figures from the Eurozone. From a technical perspective, EUR/USD has transitioned from a sideways market into a clear bullish trend. On the daily chart, the pair has established a series of higher lows from the 1.1600 area and has successfully surpassed several resistance levels. The price initially regained last week’s peak close to 1.1681, subsequently surpassed the 50% retracement of the September–October range at approximately 1.1693, and then broke through the October 17 swing high within the 1.1727–1.1728 range. The market tested and briefly surpassed the 61.8% retracement level near 1.1746, with intraday highs reaching approximately 1.1759 to 1.1762. This sequence of breaks indicates a clear transition of control to buyers. The support level has ascended following the breakout. Current demand is consolidating in the range of 1.1727–1.1728, aligning with previous resistance and minor Fibonacci retracement levels. Significant support levels are identified at 1.1706–1.1707, coinciding with the 38.2% retracement, and at 1.1689, which represents the 50% retracement and an important previous breakout shelf. Provided that EUR/USD remains above approximately 1.1689–1.1700 on a daily closing basis, any declines into that range are more likely to signify managed corrections within a bullish trend rather than true reversals.
The overarching structural support is situated near 1.1600, marking the foundation of the ongoing upward movement. Classical trend filters align with the optimistic perspective. The EUR/USD pair is positioned well above its 50-day exponential moving average at approximately 1.1664 and also above its 100-day EMA, which is around 1.1635. Both averages are trending upwards and currently serve as stronger trend support. A return to those averages without a breach would probably be seen as a buying opportunity by medium-term investors. The daily momentum remains favorable. The relative strength index is positioned in the mid-60s, a range that signals robust upward momentum while not yet suggesting an overextended, blow-off phase. Short-term flows convey a consistent narrative. On intraday charts, particularly in the 5-minute and 30-minute frames, there is a consistent effort from buyers to uphold the rising moving averages. The 100-bar moving average has ascended to approximately 1.1719, whereas the 200-bar average is situated around 1.1706–1.1707. Each decline into the 1.1700–1.1710 range during Asian and early European trading sessions has drawn buying interest, prompting movements back toward the 1.1740–1.1760 zone. This behavior exemplifies a controlled momentum trend: the price retraces to ascending averages, less committed investors sell off, while more resilient investors enter at elevated levels. The market exhibits a clear hierarchy of reference levels on the topside. The initial level to observe is the 1.1762–1.1763 area, where recent peaks align with an important Fibonacci indicator. A decisive daily close above that band shifts attention to the 1.1779–1.1788 swing zone, which has multiple historical touches and thus holds significant supply information. If momentum is robust enough to surpass 1.1788, the subsequent extensions are positioned around 1.1797, followed by 1.1811, and then 1.1832. Given the current pressure on DXY and the downward trend in US yields, the existing technical setup allows for EUR/USD to potentially reach the high 1.17s and possibly the low 1.18s, provided that macro conditions do not abruptly revert in favor of the dollar.
The clear risk to the optimistic outlook is an unexpected positive shift in US data that compels markets to reduce their anticipations for rate reductions. The postponed Nonfarm Payrolls report, forthcoming Consumer Price Index data, Retail Sales, and preliminary PMI readings will all significantly impact the extent of easing anticipated for 2026. Robust payroll growth, increased inflation, or steady consumption could suggest that the existing 58% likelihood of two rate cuts by October 2026 is overly optimistic, possibly pushing DXY back toward the 98.76–99.24 resistance area and driving EUR/USD down toward 1.1700–1.1689. On the other hand, weak employment figures, subdued inflation, and a decline in consumer spending would strengthen the existing dovish trend and probably lead to a definitive breach of the 1.1762–1.1788 range. The Federal Reserve’s verbal guidance serves as the second significant lever. Insights from Fed officials like Beth Hammack and Austan Goolsbee will either affirm or contest the prevailing market narrative. If inflation risks are emphasized, it can be argued that the three cuts already implemented are adequate, while also resisting political pressure for further easing, potentially providing the dollar with some interim support. If they concentrate on the potential downside risks in the labor market, recognize the importance of the 44,000 increase in jobless claims, and accept market pricing for further cuts, traders will interpret it as validation that the dot plot underrepresents the easing cycle. In that scenario, EUR/USD bulls will likely feel at ease boosting their positions above 1.17 instead of anticipating a significant retracement.