EUR/USD has been steadily advancing since late 2025, establishing a clear pattern of higher lows from the 1.1850 level. The pair initially encountered resistance within the 1.18661–1.18918 supply zone, a range that has consistently rejected price movements and established the upper boundary of a medium-term range. The ceiling has been tested and partially breached, with spot fluctuating between approximately 1.1960 support and the recent high of 1.2040–1.2050. The transition from 1.1850 to the 1.18661–1.18918 range is entirely consistent with the overall decline of the US dollar and a reassessment of policy risk in Washington. The recent decline from the 1.20 level to the 1.198–1.199 range represents a retest rather than a break in trend. EUR/USD continues to operate above the ascending trendline from 1.1850, maintaining its position above the 50% retracement at 1.1966 and the 61.8% at 1.1939, with 1.1900 identified as the critical invalidation level for the bullish framework. The decline in the USD is influenced by foreign exchange decision-makers, rather than a downturn in US assets. The dollar index currently stands at approximately 96.24, having breached last year’s support level around 96.20, which could allow for an additional downside of about 3% if the current momentum continues. Major asset managers are increasing hedge ratios concerning US exposure, whereas hedge funds and CTAs are expanding their short-dollar positions following range breakouts. This is directly impacting EUR/USD through systematic dollar selling across the market. With the Fed funds rate remaining within a 3.50%–3.75% range, the implications from price are evident: the significance of policy risk and dollar-policy uncertainty currently outweighs the remaining yield advantage.
Political signals emanating from Washington are intensifying the pressure on the USD. Statements from President Trump indicating a lack of concern regarding a weaker dollar and suggesting an openness to a softer currency to bolster exports align with historical Republican inclinations. Simultaneously, the speculation surrounding potential involvement of US authorities in USD/JPY intervention prompts an inquiry into the administration’s stance on wider dollar depreciation. The combination brings back the “Sell America” narrative: international investors reduce their dollar-denominated holdings and move towards alternatives, such as the euro. For EUR/USD, this indicates that the dollar must now provide evidence to support its position. If the Federal Reserve is unable to produce a lasting rebound in the USD despite maintaining steady interest rates, the market will continue to favor euro longs during pullbacks. The EUR is not surging based solely on its own fundamentals, yet it demonstrates notable resilience. In 2025, euro-denominated portfolios demonstrated superior performance compared to USD on a total-return basis, with markets currently perceiving the most significant macro risks in the eurozone as largely mitigated. The European Central Bank is viewed as entering a more stable phase, transitioning from an emergency stance to a more calibrated approach. The current environment enables the euro to take in incoming flows as the dollar is divested. Nonetheless, the recent movement in EUR/USD reaching and surpassing 1.18661–1.18918, and subsequently approaching 1.20, remains largely influenced by the weakness of the USD. This is evident in the rate space: as EUR/USD advanced, short-dated euro swap rates declined, indicating apprehension in Frankfurt that an excessively strong euro might pull inflation below the target.
The implied probability of an ECB cut around July has risen in the rate markets from approximately 15% to about 25%, following remarks from Governing Council members indicating that a stronger EUR might warrant earlier easing. The recent shift has tempered euro momentum, resulting in a retreat of EUR/USD from the 1.20 zone to the 1.198–1.199 range. This is not a policy shock; it serves as an indication that the ECB will maintain control over the currency’s trajectory. A probability of a 25% cut aligns with a central bank that is mildly dovish rather than aggressive. For EUR/USD, this indicates that there remains potential for upward movement as long as the Fed and the White House maintain pressure on the dollar. However, each increase of 200–300 pips will heighten the likelihood of verbal or policy responses from the ECB, which inherently slows the pace of the ascent. On the macro side, the USD is lacking robust backing from domestic data. US consumer confidence has decreased to 84.5, marking the lowest point in over eleven and a half years, indicating increasing pressure on households. ADP employment growth has decelerated for the third consecutive week, indicating a reduction in momentum within private-sector hiring. Despite that, the Fed is maintaining the 3.50%–3.75% funds corridor and indicating a stance of patience. The outcome presents an unusual equilibrium: underlying fundamentals suggest a weaker dollar, yet the impending Federal Reserve decision and the potential for intraday volatility deter traders from fully committing to short positions. The EUR/USD’s pause around 1.20 indicates positioning risk rather than a resurgence of confidence in the dollar’s macroeconomic narrative.
From a technical perspective, EUR/USD appears to be in a bullish trend that is currently experiencing a pause rather than a reversal. The 2-hour chart indicates that the price is stabilizing near 1.1960 following a rejection at the upper boundary of the 1.2040–1.2050 range. The decline has adhered to traditional retracement levels: the 50% retracement at 1.1966 serves as initial support, while the 61.8% at 1.1939 provides a more substantial buffer. Below that, the ascending trendline from 1.1850 and the 1.1900 psychological level delineate the threshold between continuation and breakdown. The candlestick patterns indicate a trend of profit-taking, characterized by small real bodies and minimal follow-through, rather than a scenario of forced liquidation. The RSI approaching 60 suggests a period of consolidation following a robust upward movement, indicating that the trend is not yet concluding. The critical levels in EUR/USD are clearly established. On the downside, the initial level to monitor is 1.1966 (50% retracement), succeeded by 1.1939 (61.8% retracement) and the wider support range of 1.1935–1.1940. A decisive break below 1.1900 would exert pressure on the rising trendline and redirect attention toward the 1.1850 base, indicating a potential failure of the bullish structure. On the topside, regaining 1.1995 serves as the initial confirmation that buyers have re-asserted control. The next resistance cluster is found in the 1.2030–1.2080 range, where previous highs and short-term targets align. Provided that the dollar index remains beneath the breached 96.20 level, a medium-term movement towards 1.23–1.24 is still a possibility, despite the potential for headline risk to create fluctuations along the way.
The forthcoming significant movement for EUR/USD will be influenced by the Federal Reserve’s decision and communication. Market participants anticipate that policy will remain within the 3.50%–3.75% range, placing emphasis on the tone of the statement and the subsequent press conference. If the Federal Reserve recognizes diminished confidence and a slowdown in job growth, adopts a data-driven approach, and refrains from strongly countering easing expectations for late 2026, the downward pressure on the dollar is likely to continue. This scenario could enable EUR/USD to swiftly return to 1.20, re-evaluate the 1.2030–1.2080 range, and establish a stronger foundation. If Powell conveys a more aggressive stance, anticipate a USD short squeeze that pulls EUR/USD down to the 1.1935–1.1900 range. Even in that scenario, any new remarks from Trump indicating a preference for a weaker dollar will probably limit the sustainability of a USD rally.