The EUR/USD pair is currently positioned between 1.1593 and 1.1600, with the latest quote at 1.1599, reflecting a decrease of approximately 0.08% for the day and a decline of about 0.3% over the past two sessions. The pressure is predominantly originating from the USD side. The US Dollar Index is currently positioned at approximately 99.38, reflecting a 0.03% increase for the day and approaching the resistance range of 99.25–99.50 following a clear upward trend that began in late December. Simultaneously, the US 10-year yield has risen to approximately 4.219%, nearly 5 basis points higher for the day and reaching levels not observed since September 2025. Currently, the federal funds rate is approximately 3.75%. Rate-path probabilities indicate that there is over a 65% likelihood that the Federal Reserve will maintain the current rates in the upcoming three meetings through April 2026. Additionally, the market has only priced in about 43 basis points of easing for the remainder of 2026. The current conditions—DXY around 99.5, 10-year yields exceeding 4.2%, and a Federal Reserve perceived as “on hold”—create an environment where EUR/USD is likely to drift lower instead of experiencing sustained rallies. The offer in USD is supported by concrete figures, rather than mere storytelling. Headline CPI is currently at approximately 2.7% YoY, remaining largely stable since November, whereas PPI has increased to 3.0% YoY from 2.8%, indicating that pipeline price pressures persist. On the labor side, Initial Jobless Claims have decreased from 207k to 198k, and the Unemployment Rate has slightly declined to 4.4%, just under the Fed’s own 4.5% forecast. Nonfarm payrolls were characterized as robust, despite falling slightly short of expectations. Industrial activity is demonstrating resilience: US Industrial Production increased by 0.4% MoM in December, surpassing expectations of approximately 0.1%, which supports the notion of ongoing growth. When analyzed collectively, that data cluster elucidates the rationale behind the markets’ reduction of aggressive Fed-cut expectations and highlights the DXY’s efforts to surpass the 98.0–99.5 range. In the case of EUR/USD, the current macroeconomic conditions, characterized by US inflation ranging from 2.7% to 3.0%, an unemployment rate of 4.4%, and industrial output increasing by 0.4%, do not suggest a scenario where the dollar usually experiences significant weakening.
The sentiment surrounding the EUR is considerably more subdued. Germany’s Harmonised Index of Consumer Prices experienced a 0.2% increase month-over-month in December, following a decline of −0.5% in November. However, the year-over-year headline rate decreased to 2.0%, down from 2.6%. The ECB’s target is precisely aligned with this, reinforcing the overall trend of inflation deceleration in the Eurozone, where the headline rate has recently hovered around 2.4%. Simultaneously, late-2025 business surveys indicated that manufacturing continued to experience contraction, while growth momentum throughout the Euro Area appears to be fragile. The interplay of German HICP at 2.0%, the decline in Eurozone inflation, and sluggish manufacturing positions the ECB to adopt a more dovish stance compared to the Fed. Market commentary is currently discussing the prospect of earlier easing by the ECB, while the Fed maintains a neutral stance. The structural negative impact of that policy divergence on EUR/USD is evident, as it solidifies rate spreads and capital flows favoring the USD. This is particularly true with US 10-year yields exceeding 4.2% and the DXY approaching 100.00. The movement in EUR/USD illustrates this macroeconomic disparity. The pair has recorded a year-to-date low at 1.1593, momentarily dropping below 1.1600 before recovering, yet each rebound has been met with selling pressure. The current spot is positioned nearly precisely within the critical support range of 1.1580–1.1600, as highlighted by various analysts. One analysis describes the weekly tone as a “consistent bearish bias”, with EUR/USD dropping close to −0.3% over the last two sessions as USD strength has re-emerged. Another notes that the pair “continues its attempts to settle below the 1.1600 level,” with 1.1500–1.1515 as the next support if 1.1600 finally gives way. In other terms, 1.1593–1.1600 represents a critical level; it is the zone where buyers are attempting to maintain the range, while sellers are consistently challenging their strength.
The technical outlook for EUR/USD indicates a distinct bias towards a downward movement. Since approximately December 24, the pair has been establishing a pattern of lower highs, creating a short-term downtrend within a larger long-term sideways range. On the daily chart, EUR/USD is positioned beneath the 21-day SMA around 1.1707, as well as below the 50-day and 100-day SMAs grouped at 1.1660–1.1665, establishing a significant layer of dynamic resistance above the current level. The 200-day SMA is positioned at approximately 1.1582, aligning closely with the current price, thereby establishing this area as a pivotal point: a definitive breach beneath 1.1582 would indicate a failure of long-term support. Momentum indicators support the bearish outlook. The RSI has dipped beneath the neutral 50 line and currently sits in the low 30s around 34, indicating that downside momentum prevails, though it has not reached an oversold condition yet. The MACD histogram continues to stay beneath zero and below the signal line, reinforcing the bearish sentiment. On 4-hour charts, the pair is positioned within a descending channel, facing significant resistance at the 4H 50-MA approximately 1.1655 and the 4H 200-MA close to 1.1700. Until EUR/USD can reclaim and hold above 1.1650–1.1700, every bounce is technically just a rally within a downtrend. The movements of the US Dollar Index serve as a crucial reflection for EUR/USD. DXY has experienced a significant rally since it emerged from its November downtrend, maintaining an upward trajectory since approximately Christmas Eve. The price has ascended from the 97.7–98.0 range to approach the 99.25–99.50 level, a resistance area that has constrained the index on several occasions. A breach above that level would reveal the range of 100.00–100.50, with a notable resistance zone situated between 100.25 and 100.40. Short-term charts indicate a developing bearish divergence in RSI on the 4-hour timeframe at these levels, suggesting that the dollar’s immediate upside momentum may be slowing. However, as long as DXY holds above approximately 98.96 (4H 50-MA and channel lows) and maintains an upward bias, EUR/USD will find it challenging to initiate anything beyond corrective rebounds. The message is clear: EUR/USD is unable to achieve a lasting recovery as DXY remains consolidated just under 100, with US yields exceeding 4.2% and Fed cuts limited to approximately 43 bps for the year.
The level map for EUR/USD is clearly articulated in numerical terms. The immediate downside band is positioned between 1.1580 and 1.1600, encompassing the 1.1593 year-to-date low and the 1.1582 200-day simple moving average. A clean daily close below 1.1580–1.1582 suggests a potential decline toward 1.1550, with the broader support area at 1.1500–1.1515 likely to come into play, as it has consistently served as the lower boundary of the long-term range. Should the price fall below 1.1500, the subsequent level to watch is the low from August 1 at 1.1391, followed by the range between 1.1350 and 1.1400. On the upside, the first real test is reclaiming and holding above 1.1600 itself, which would at least neutralize the immediate breakdown threat. Additionally, resistance is positioned at 1.1630–1.1670, which includes the descending channel highs and the 4H 50-MA at 1.1655. Following that, further resistance can be found at 1.1700–1.1707, marked by the 4H 200-MA and the 21-day SMA. A more substantial recovery would require breaking through 1.1750 and ultimately reaching the 1.1800 area. However, with the RSI below 50, MACD in the negative zone, and DXY hovering around 99.3–99.5, that trajectory appears to have a low likelihood at this time. The policy divergence influencing EUR/USD is intensifying, rather than diminishing. In the United States, the market indicates a greater than 65% likelihood that the Federal Reserve will maintain the 3.75% funds rate steady at the upcoming three meetings, with merely 43 basis points of rate cuts factored in by the end of the year. With Industrial Production showing a robust increase of +0.4% MoM, the PPI standing at 3.0%, CPI at 2.7%, and a decline in jobless claims to 198k, the current economic indicators support a cautious “wait-and-see” approach from the Fed. Federal Reserve officials, including Vice-Chair Jefferson and Boston Fed President Susan Collins, have characterized the current policy stance as “in a good place.” In contrast, only Governor Bowman has suggested the possibility of further cuts, and even her comments reflect a cautious approach. Conversely, the Eurozone is experiencing German HICP at 2.0%, with overall inflation hovering around 2.4%, alongside ongoing challenges in the manufacturing sector. The situation presents growing challenges for the ECB in upholding a restrictive approach.
Market commentary indicates a shift towards anticipating earlier cuts from the ECB in comparison to the Fed. When one central bank is set at 3.75% with minimal easing anticipated, while the other shifts towards a more accommodative stance, the resulting rate differential and capital flow dynamics support the USD and exert pressure on EUR/USD. Relative performance tables highlight that the EUR is not merely weak against the USD; it is lagging behind a wider array of peers. A recent weekly overview indicates that the EUR has depreciated approximately 0.29% against the USD, 0.16% against the GBP, 0.26% against the JPY, 0.29% against the CAD, 0.34% against the AUD, and 0.69% against the NZD, while remaining unchanged against the CHF. Simultaneously, the DXY is advancing, and the daily chart of the Dollar Index indicates a robust upward movement that began in late December. This pattern indicates that investors are adjusting their allocations towards the USD, supported by a clear macro narrative: robust data, elevated real yields, and a central bank that is not in a hurry to implement cuts. For EUR/USD, this indicates that rallies are being utilized to re-establish short positions or decrease long exposure, rather than to create a new bullish trend.