EUR/USD is currently positioned at approximately 1.1740–1.1741 following the recent 25 bp Fed cut, effectively maintaining its stance just below a clearly established resistance band rather than showing signs of reversal. The price is consolidating within the upper segment of the recent range, rather than retreating from it. Positioning indicates a cautious stance, yet remains tilted towards the upside: traders are anticipating the delayed US data and the forthcoming macro impulse instead of viewing this zone as a definitive peak. The Federal Reserve has reduced the target range by 25 basis points to 3.50%–3.75%. However, the primary influence on the dollar stems from the internal divisions and the prevailing “pause” sentiment. Numerous policymakers characterized this time as one of evaluation due to the postponement of critical data. Some officials emphasized that inflation remains elevated compared to the 2% target and expressed unease about accelerating the pace of action. Some have compellingly contended that implementing cuts prior to 2026 jeopardizes the stability of the disinflation narrative. The split prevents the dollar from achieving definitive bullish momentum: market participants are aware that further easing is a possibility, yet they also recognize that the Fed will rely on data for the time being, resulting in the currency trading in a level-to-level manner rather than following a clear trend.
The most recent figures prior to the data blackout remain significant. Nonfarm payrolls previously indicated approximately 199,000 new jobs, with unemployment hovering around 3.7%. This suggests a labor market that is experiencing a slight cooling trend, yet remains stable and intact. Headline CPI at approximately 3.1% indicates a disinflationary trend from its peak; however, inflation continues to exceed the 2% target. The interplay of these factors warrants a pause following the reduction, yet it does not endorse a forceful tightening adjustment. For EUR/USD, this indicates that the macro environment continues to favor a weaker dollar in the long run. However, the Fed may leverage these figures to withstand market demands for a swift rate-cut trajectory if forthcoming data proves to be unexpectedly strong. In Europe, the inflation data presents a mixed picture rather than indicating outright deflation. In November, Germany’s HICP experienced a month-on-month decline of 0.5%, while maintaining a year-on-year rate of 2.6%. Spain’s HICP increased to 3.2% year on year, up from 3.1%. At the euro area level, the most recent reference provided for November indicates that inflation is approximately 2.4%. This profile provides the ECB with minimal justification to hasten into significant reductions, whereas the Fed has already commenced its trimming process.
The outcome for EUR/USD is clear: the euro does not require significant strength; it merely needs to prevent itself from becoming the “policy laggard” compared to a dollar whose central bank is already implementing easing measures. The relative position indicates that the pair is likely to remain above 1.17 instead of declining. The price movement of the dollar index indicates a confirmed shift in balance. A significant pivot for 2025 at 98.98, which once served as support, has been breached and now functions as resistance during rebounds. A nearby shelf around 98.60 experienced a short-term bounce; however, it did not succeed in reversing the broader decline. There exists an unfilled gap below current levels in the 97.71–97.96 range, alongside a projected downside target around 97.46 stemming from a broader topping structure. If bears drive the index lower into that zone, EUR/USD will have the capacity to rise further without requiring extra positive catalysts specific to the euro. The indication from the dollar perspective is clear: unless EUR/USD encounters technical failures, the overall sentiment towards the USD continues to support upward movements in the pair rather than significant, lasting declines.
EUR/USD is positioned just below a distinctly marked breakout band. The initial significant level is the high from December 11, located around 1.1762–1.1763, which has consistently produced upper wicks and intraday rejections. Just above that is a longer-term level at 1.1748, which has served as a significant reference throughout the year, based on the 78.6% retracement of the 2021–2022 downswing. Earlier in Q4, that area exhibited lower highs and thwarted bullish attempts. The present configuration shows a notable shift: the pair has established a higher low around 1.1500 and is revisiting this level from a more robust foundation. Therefore, a definitive daily close above 1.1762–1.1763 would signify more than just a slight breach; it would indicate a shift from a “capped rebound” to a “trend extension.” Once 1.1762–1.1763 is breached on a sustained basis, the market has a series of upside levels already established. The initial target is 1.1786, positioned just beyond the existing resistance band and is expected to be tested promptly upon any significant breakout. Above that, the round 1.1800 handle becomes the next focal point, followed by the wider resistance area around 1.1850. Should the pair take in supply at that level, the annual high near 1.1918 re-emerges as a key target for the movement, thereby altering the perspective towards new peaks instead of merely a recovery within a broad range. From a trend perspective, a series of higher lows at 1.1500 and higher highs above 1.1918 would indicate that the dollar’s rebound in 2025 has been neutralized in EUR/USD.