EUR/USD is currently positioned between 1.1779 and 1.1800, hovering just below a short-term supply zone at 1.1800 following a consistent upward movement since late November. The price is currently navigating an upward channel on the 2-hour chart, with previous resistance levels at 1.1745–1.1750 now functioning as support and coinciding with the intraday trend line. The pair remains positioned above the 200-EMA at approximately 1.1705, with the 50-EMA situated just below the current level, reinforcing a positive short-term outlook. The RSI has decreased from an overbought level close to 70 to approximately 55, indicating a phase of digestion instead of exhaustion. While EUR/USD remains above 1.1750, the market is interpreting this area as a consolidation phase within an uptrend, rather than indicating a potential reversal. The primary macro factor influencing EUR/USD through 2026 is the diminishing U.S. real-rate advantage. The Federal Reserve reduced rates in December 2025 to a range of 3.50–3.75% and acknowledged increased uncertainty regarding inflation to safeguard growth and employment. The current market expectations indicate approximately two to three further reductions by 2026, positioning the policy rate in the range of 2.75–3.00%. Core PCE is currently around 2.9%, while unemployment stands at approximately 4.4%, resulting in real policy rates that are just slightly above zero. This represents a distinct downgrade from the 2022–2024 period, during which heightened real yields supported the USD.
The US Dollar Index is currently positioned around 97.95, constrained within a descending channel that has been in place since mid-November, and remains below both its 50-EMA and 200-EMA. The previous support level at 98.10 has now become resistance, whereas the support range of 97.70–97.75 continues to indicate a weak structure. The RSI at approximately 45 on the DXY indicates a corrective environment, suggesting a weaker dollar scenario. In the case of EUR/USD, this combination inherently directs flows in favor of the euro on any day that does not experience a significant positive data surprise from the U.S. The narrative surrounding policy extends beyond the Federal Reserve; it encompasses political dynamics as well. In 2025, Trump consistently called for rates to be lowered to below 1%, significantly lower than the existing 3.50–3.75% range, and he frequently indicated the possibility of ousting Powell, even as his term was nearing its end. The context, combined with yearly fiscal deficits estimated at approximately $1.8–$1.9 trillion and total U.S. debt nearing $38 trillion, creates a fundamental political discount on the USD. Intense political pressure for ultra-low rates, coupled with ongoing fiscal expansion, raises concerns among investors regarding the long-term purchasing power of the dollar. The market began to incorporate this aggressively in early 2025.
The outcome was a significant change in EUR/USD: the pair ceased its decline towards parity, adhered to a crucial Fibonacci support zone following a 1,000-pip decrease from the Q3 2024 peak, formed an ascending triangle, and subsequently surged upward as recession anxieties and reduced expectations heightened. The initial phase of the current regime was characterized by a trend driven more by USD weakness than by euro strength. In Europe, the ECB has reduced the deposit rate to approximately 2.0% and is now indicating that its policy is “in a good place,” a term often used by central banks to suggest that they are nearing the lower limit unless there is a significant downturn in the data. This contrasts with the Fed’s anticipated trajectory, which suggests additional easing measures in 2026. As Fed funds approach 2.75–3.00% and the ECB remains around 2.0%, the rate spread narrows, benefiting the EUR, particularly when accounting for inflation adjustments. The fundamentals of the Eurozone may not be exceptional, yet they are showing signs of improvement. Germany’s €500 billion infrastructure program aims to address years of under-investment and bolster demand over an extended period. One significant house project anticipates eurozone growth increasing from approximately 0.9% in 2025 to about 1.5% in 2026. This situation is sufficient to draw additional capital, particularly when U.S. valuations appear elevated, notably in technology and high-beta sectors, and when currency-adjusted returns for euro-based investors in U.S. equities indicate approximately −8% in 2025 following foreign exchange impacts.
Institutional forecasts for EUR/USD through 2026 are grouped within a tight range, consistently reflecting a common narrative: ongoing structural weakness in the USD and a slight enhancement in the macroeconomic outlook for the EUR. Goldman Sachs maintains a year-end 2026 target of 1.25, linking it to the diminishing U.S. exceptionalism and the continued shift away from dollar assets. J.P. Morgan targets a range of 1.20–1.22, supported by expectations of two Federal Reserve rate cuts in the first half of 2026 and a gradual alignment in real yields. Morgan Stanley anticipates a level of 1.23 in the spring, followed by a decline to 1.16 by year-end as the easing cycle reaches maturity and U.S. data stabilizes. UBS adjusts its forecast to 1.20 due to the political risk in France, yet maintains an outlook for appreciation as U.S. data softens following the shutdown and the ECB remains steady. Deutsche Bank is set at 1.25, anticipating a resurgence in global growth, significant fiscal stimulus from Germany, and a rebound in Asian currencies, particularly the yen and yuan. Without any branding, these scenarios suggest that EUR/USD will likely remain above 1.20 for the majority of 2026, with 1.25 being a plausible target if the dollar fails to recover a significant yield advantage. From a technical perspective, EUR/USD has successfully transitioned from a counter-trend bounce to a definitive uptrend. On the daily chart, the spot has consistently traded above the 200-day moving average, positioned near 1.14965 since March 2025. The resurgence above the 50-day moving average at approximately 1.16088 has validated the shift in market dynamics; this moving average now serves as a dynamic support level during pullbacks. The current peak of the year at 1.19188 serves as a clear attraction for upward movement. On the weekly chart, EUR/USD is positioned significantly above the 52-week moving average around 1.12791, establishing a clear ascending base formed from swing lows at 1.10649, 1.13916, and 1.14686. Every selloff has been absorbed at a higher level than the previous one, which aligns perfectly with the pattern that long-only macro funds seek when they increase their positions. Analyzing the monthly chart, the 12-month moving average at approximately 1.13115 has transitioned from a resistance level to a support level. This positions 1.19188 as a key trigger for a potential acceleration towards the multi-year high close to 1.23496 anticipated in 2026. Currently, EUR/USD has transitioned from a repair mode to a trend phase, indicating that the preferred strategy is to buy on dips. The short-term framework for EUR/USD near 1.1779 is clear-cut. On the 2-hour chart, the price is moving within an ascending channel. The primary demand zone is positioned near 1.1750, coinciding with the previous breakout level at 1.1745–1.1750, which aligns with the channel support.
The 200-EMA is positioned slightly lower at 1.1705, with the 50-EMA trending upward directly beneath the current price level. Sellers have identified 1.1800 as a supply zone, showing rejection during initial tests, yet lacking significant follow-through. Rejections appear minimal, with small candle bodies and a lack of a decisive bearish movement, indicating that we are witnessing profit-taking rather than the formation of a structural top. A sustained move above 1.1800 would pave the way toward 1.1820, followed by 1.1850, and subsequently, the market is likely to test the high near 1.19188 if the dollar continues to weaken. Provided that EUR/USD remains above 1.1750, the inclination is to purchase on pullbacks. A decline beneath 1.1715–1.1700 would indicate a more significant correction; however, it would not, by itself, negate the overarching uptrend supported by the 1.1496–1.1500 level. The 2025 tape presented two significant surprises for EUR/USD, both of which continue to influence the outlook for 2026. The initial issue was the breakdown of the parity narrative. As we approached early 2025, the pair had experienced a decline of approximately 1,000 pips from its peak in Q3 2024, while U.S. Treasury yields were on the rise, making a test of 1.0000 seem nearly unavoidable. A significant Fibonacci level interrupted the downward trend, leading to the formation of an ascending triangle through February. In March, amid increasing U.S. recession concerns and declining rate expectations, EUR/USD surged higher in a strong movement. The second unexpected development was the performance observed in the latter half of the year. Following the rally, the pair encountered a well-known Fibonacci resistance band in early Q3, aligning with the 76.4–78.6% retracement of the prior leg, and experienced a halt at that level. Instead of surging upwards, EUR/USD has been consolidating beneath that ceiling for several months. In November, the 1.1500 zone demonstrated resilience by maintaining its position as a support level on two occasions. The analysis indicates that the euro’s strength in the first half was mainly influenced by the repricing of the USD, whereas the pause in the second half signaled the market’s anticipation for confirmation that the narrative surrounding growth, rather than solely rates, was undergoing a shift.