Kevin Warsh’s nomination as the next Fed chair has provided the USD with its first significant relief rally in weeks. Following a decline to a four-year low, the Greenback attracted buyers, contributing to a pullback in EUR/USD from the 1.2000–1.2080 range toward the 1.1900–1.1950 area. Markets interpreted Warsh as a more conventional central banker than anticipated, providing reassurance to investors regarding Fed independence and diminishing the likelihood of ultra-dovish scenarios. The recent shift substantiates a more robust USD in the immediate term and clarifies why the pair is no longer on a consistent upward trajectory. The positioning of the dollar is also reacting to developments in Washington. A bipartisan agreement has alleviated the immediate risk of a U.S. government shutdown, a significant political uncertainty that had been impacting the USD. With that risk eliminated, traders were prepared to close their dollar short positions. Currently, the US Dollar Index is positioned around 96.5, having retreated from the 98.90–99.00 range. It remains within a wider downward channel, yet it is no longer experiencing a rapid decline. In this context, markets are closely monitoring December PPI, with forecasts indicating a decline in the headline figure from 3.0% to approximately 2.7%, while the core is expected to decrease from 3.0% to around 2.9% year-on-year. An unexpected positive development could strengthen the dollar and maintain EUR/USD nearer to 1.1900 instead of reaching 1.2000 in the short term. The decline in EUR/USD is not a result of weakness in the Eurozone. Conversely, the bloc has reported data that exceeds expectations. In the fourth quarter, the Eurozone’s GDP experienced a growth of 0.3% compared to the previous quarter and 1.4% on a year-over-year basis, surpassing the consensus estimates of 0.2% and 1.2% respectively. Germany exceeded expectations with a 0.3% QoQ growth following flat performance in the prior quarter and recorded a 0.4% YoY increase compared to 0.3% previously. Inflation demonstrates persistence rather than ease: the preliminary German HICP for January recorded a -0.1% MoM, yet annual inflation rose to 2.1% YoY, surpassing the 2.0% forecast and the previous 2.0%. The data reinforces the notion that the euro’s robustness is underpinned by macroeconomic factors, despite today’s decline giving it a less formidable appearance.
The pressure on the single currency stems not from data but from indications of policy direction. As EUR/USD surpassed 1.20 and momentarily approached 1.2080–1.2085, concerns emerged within the ECB regarding the rapid appreciation of the euro, which poses a threat to export competitiveness and heightens downside risks to inflation. The significance of that rhetorical pushback cannot be overstated: should more officials suggest rate cuts or a more gradual normalization trajectory, the market may become less inclined to pursue EUR/USD gains solely based on positive data. Currently, those remarks do not disrupt the upward trend; however, they suggest a potential ceiling around 1.20–1.21 unless there is a further deterioration in U.S. data. Currently, EUR/USD is positioned approximately between 1.1920 and 1.1930, reflecting a decline of about 0.3 to 0.4%, following a rejection of the 1.2000 level and the 1.2080 multi-year peak. The pair fell beneath 1.1900 during Asian trading, examined that level, and subsequently rebounded approximately 20–30 pips higher. The bullish sentiment is evident as they protect the 1.1890–1.1920 range, whereas bearish forces are positioned at 1.1960–1.2000. This has become the crucial intraday focal point: maintaining a position above 1.1890 keeps the recent breakout framework intact; failing to do so could lead to a deeper correction toward lower support levels. The pair has fallen beneath the 100-hour SMA, indicating a distinct signal that upward momentum has diminished. The 38.2% Fibonacci retracement of the most recent upward movement is positioned around 1.1890–1.1892, serving as the initial support level. Subsequently, the 50% retracement is observed around 1.1830–1.1832, while further down, the January 23 low and the preceding swing support cluster are located near 1.1730.
Momentum indicators indicate a decline in strength: the MACD histogram has fallen below zero with increasing negative bars, and the RSI has decreased into the low-40s on intraday frames, dipping below the 50 line. The combination indicates a diminishing potential for upward movement rather than a complete trend reversal. A clean daily close beneath 1.1890 would pave the way toward 1.1830, whereas maintaining a position above this level keeps the pullback in check. Upon reviewing the daily chart, the overall structure remains positive. The price is currently positioned above the 15-day and 20-day moving averages, both of which are trending upwards and serving as dynamic support during pullbacks. Recent weeks have seen each dip toward these averages draw in new buyers instead of triggering additional selling pressure. The 14-day RSI has retreated from overbought levels into the low-60s, indicating a constructive reset within an uptrend rather than signaling a topping pattern. The absence of a distinct bearish divergence indicates that momentum has returned to normal levels rather than showing signs of reversal. Provided that EUR/USD maintains its position above the 1.1830 area and the relevant short-term averages, the prevailing medium-term bullish sentiment continues to be the primary influence. Immediate support is identified at 1.1890–1.1900, which aligns with the 38.2% Fibonacci retracement of the recent advance and the recent intraday lows observed on January 28–29. The next downside level to monitor is 1.1830–1.1832, which represents the 50% Fibonacci retracement and serves as a significant intermediate support should 1.19 fail to hold. The deeper floor is located around the 1.1730 area, which serves as a previous swing low and a key reference point for a complete corrective leg while maintaining the overall uptrend.
Initial resistance is observed at 1.1965–1.1970, which aligns closely with the 23.6% Fibonacci level at 1.1967, marking the primary zone where selling pressure is expected to reappear. Psychological and structural cap: 1.2000, with the recent high approximately 1.2030. Key resistance level: the spike high around 1.2080–1.2085, representing the most significant barrier in the current framework, which the market must surpass to initiate a renewed upward trend. Bulls are purchasing dips around 1.1900, with stop-loss orders primarily concentrated beneath 1.1830. Conversely, bears are capitalizing on strength within the 1.1960–1.2000 range, anticipating that dollar relief and ECB commentary could lead to a more significant retracement. Integrating the macroeconomic factors with the technical analysis, the directional call is evident. Warsh’s nomination, the averted U.S. shutdown, and the impending PPI print support a stronger USD in the near term, which is precisely what the shift from 1.2080 to around 1.1900 indicates. Nonetheless, Eurozone growth stands at 0.3% QoQ and 1.4% YoY, with German GDP also at 0.3% QoQ and German inflation recorded at 2.1% YoY, which does not align with a bearish outlook for the euro. The pair continues to trade above significant moving averages, with the daily RSI firmly in bullish territory, and the pattern of higher highs and higher lows remains intact. Given this analysis, the outlook on EUR/USD is optimistic with a preference for buying on dips, rather than being neutral or outright bearish. Dips into the 1.1900 area, and even into the 1.1830 zone if the correction extends, are more likely to attract strategic buying rather than signal the beginning of a prolonged downtrend—unless the pair begins to close decisively below 1.1830 and the macro narrative shifts in favor of a significantly stronger, persistent USD.