EUR/USD is currently positioned between 1.1630 and 1.1656, hovering slightly above the recent one-month low range of 1.1615 to 1.1618, and significantly below the late-December peak around 1.1808 to 1.1810. Since reaching that Christmas peak, the pair has declined over 1.6%, establishing a distinct pattern of lower highs and lower lows. Every effort to rise above 1.1700 has faced selling pressure, indicating that the 1.1794–1.1813 range has transitioned into a firm resistance level instead of a potential launchpad for further upward movement. The US perspective on EUR/USD is clear: the data indicates a strong USD. In November, Retail Sales increased by 0.6% compared to the previous month, surpassing the anticipated 0.4% and recovering from a 0.1% drop in October. The Producer Price Index increased by 3.0% year-on-year, surpassing the previous figure of 2.8% and expectations of 2.7%. Additionally, the core PPI also registered at 3.0%, up from 2.9%. The interplay of robust consumer spending and persistent wholesale inflation maintains the Federal Reserve’s stance, preventing any shift towards interest rate reductions. The US Dollar Index is currently positioned around 99.15–99.20, approaching resistance levels at 99.25–99.30, while support is identified near 99.00 and a rising trendline is located around 98.85. As DXY continues to rise within that range, EUR/USD lacks the macroeconomic support to recover to 1.18 in the near term.
The current rates pricing indicates a significantly altered environment compared to just a few months prior. As we approach late 2025, discussions regarding two Federal Reserve cuts in 2026 have significantly diminished. Following the December hawkish hold and a core inflation profile close to 2.9% year-on-year, Fed funds futures indicate approximately a 35% likelihood of only one cut by the end of Q4 2026. The message indicates that the restrictive policy will remain in effect for an extended period. Conversely, the Eurozone appears considerably weaker in relation to EUR/USD. The flash manufacturing PMI at 48.5 indicates a contraction, while the recent rhetoric from the ECB is notably more dovish compared to the Fed’s position. There is a significant perception in the markets that the ECB may implement cuts prior to the Fed. The divergence in policy—stable or elevated real yields in the US contrasted with a European central bank poised to ease—clearly directs EUR/USD towards the low-1.16 to mid-1.15 range instead of returning to 1.18. Earlier in the week, EUR/USD saw a temporary advantage due to concerns regarding the independence of the Federal Reserve, as political pressure on Chair Powell and a criminal investigation into the central bank’s renovation contributed to a decline in the USD. The support has been eliminated. Trump has indicated that he does not intend to dismiss Powell, although he maintains a rhetorical openness on the matter. Global central bankers expressed their support for the Fed, leading to a change in the market narrative from “institution under attack” to “Fed under scrutiny but still functioning.” Once the risk premium diminished in the dollar, the euro forfeited one of its limited temporary supports, rendering EUR/USD vulnerable once more to the fundamental macro divergence.
On the European side, the latest figures are commendable yet not transformative. In November, Eurozone Industrial Production increased by 0.7% month-on-month, surpassing the consensus estimate of 0.5%. Year-on-year, output increased from 2.0% to 2.5%, surpassing the anticipated 2.0%. The challenge for EUR/USD lies in the fact that a 0.7% monthly increase in factory output fails to bridge the policy gap when compared to a US economy that is experiencing a 0.6% growth in retail sales and a 3.0% rise in PPI. The Eurozone continues to be perceived as the weaker component in the pair, characterized by sub-50 PMIs, a central bank adopting a dovish stance, and limited capacity for implementing restrictive policies. Consequently, EUR/USD struggles to maintain levels above 1.1700, even in light of Eurozone data that has slightly exceeded expectations. The pricing of derivatives aligns with the current spot trend. The one-month implied volatility for EUR/USD remains low compared to historical averages; however, risk reversals have significantly shifted to the negative side, indicating an increasing appetite for downside protection. Dealers exhibit a significant inclination towards EUR puts, particularly in maturities aligned with the upcoming Fed and ECB decision timelines, marking the most notable trend since late 2025. Preferred structures encompass long-dated EUR/USD puts with strikes near 1.1400, alongside volatility-centric strategies such as long strangles extending into March 2026. The profile indicates a clear trend: the market is investing in insurance below the 1.1600–1.1500 range and is preparing for a downward movement rather than a rebound above 1.18. On the four-hour chart, EUR/USD is currently positioned around 1.1630–1.1635, operating within a clearly established descending channel that commenced following the peak at 1.1808. The price remains beneath the 50-period and 200-period EMAs, transforming every rebound into a chance to sell instead of indicating a trend reversal. The RSI remains in the range of 38–40 and is trending downward, indicating an accumulation of bearish momentum while still avoiding oversold territory. The MACD is approaching the zero line, indicating a stable trend rather than a sharp decline. Immediate support is positioned at the January 9 low around 1.1615; below this level, sellers will aim for the 1.1600 round figure and subsequently the 1.1590 area associated with previous lows. On the upside, the initial resistance level is 1.1660, followed by the channel upper boundary around 1.1690, and subsequently 1.1700. Provided that spot stays under 1.1700, the short-term technical outlook remains decidedly negative.
The structure on the daily timeframe is distinctly evident. The late-December surge peaked with EUR/USD reaching 1.1808, encountering resistance at the significant 1.1794–1.1813 range, which includes the 1.618% extension of the November advance and the high-day close from 2025. Following that rejection, the pullback has deepened beyond 1.6%, with the pair currently trading within a descending pitchfork anchored at that high. The initial key pivot point is 1.1691–1.1703, where a 38.2% retracement of the recent decline coincides with mid-December swing lows and the upper pitchfork boundary. A daily close above 1.1703 would signal the initial indication that the downtrend is losing momentum. The subsequent resistance range is identified at 1.1735–1.1746, derived from the 61.8% retracement level and the yearly opening point, followed by the same cap at 1.1794–1.1813. On the downside, the initial structural level is the November high-day close at 1.1634, which price is currently testing. Below that lies the crucial demand zone at 1.1590–1.1598, characterized by the December low, the complete extension of the late-December decline, and the 61.8% retracement of the November upswing. The 200-day moving average positioned at approximately 1.1577 lies just beneath this zone, highlighting its significance. A decline below 1.1590–1.1577 would pave the way towards the 1.1492–1.1497 region, where the peaks from March 2020 and 2022, along with the low-day close from November, intersect. The 1.1490 area stands out as the clear medium-term target for bearish positions should the prevailing trend persist. Macro Calendar for EUR/USD: US Manufacturing, PCE, Fed Speakers Against a Weaker Eurozone Environment The forthcoming schedule appears to favor a more robust USD. The upcoming release of the NY Empire State and Philadelphia Fed manufacturing surveys, in conjunction with the weekly Initial Jobless Claims, will precede the more significant PCE inflation data scheduled for later this month. With Retail Sales at 0.6%, PPI at 3.0%, and previous CPI data indicating persistent prices, any unexpected increase in PCE will reinforce the belief that Fed policy will remain tight for an extended period, allowing minimal space for a shift towards a more accommodative stance.
Europe has reported improved figures, with Industrial Production showing a 0.7% increase month-over-month and a 2.5% rise year-over-year. Despite that development, EUR/USD remains constrained below 1.1640 and is unable to revisit 1.1700. Given that Eurozone PMIs remain under 50 and the ECB appears to favor earlier easing, it is improbable that incoming data will alter the pair’s trajectory unless there is a significant adverse impact on US growth or inflation. In other markets, there is no widespread fear that would naturally lead to a depreciation of the USD. US indices are currently stabilizing rather than experiencing a downturn, gold has pulled back from levels exceeding $4,600, and crude oil is declining following Trump’s indication of no immediate military action against Iran. The strength of the dollar is not merely a result of indiscriminate risk aversion; rather, it is influenced by comparative growth, inflation, and advantages in real yields. The significance of that distinction for EUR/USD lies in its contribution to the sustainability of the downtrend. An incremental enhancement in risk sentiment will not inherently save the euro if the fundamental rate and growth differential continues to favor the US. Analyzing the current market dynamics—EUR/USD has decreased from 1.1808 to the range of 1.1630–1.1635, while the DXY remains stable around 99.20. Recent US Retail Sales reported at 0.6%, PPI at 3.0%, and core inflation is approximately 2.9%.
The market anticipates, at most, one Fed rate cut by late 2026. In the Eurozone, PMI stands at 48.5, and Industrial Production shows a monthly increase of 0.7% and a yearly increase of 2.5%. The options market indicates a strong preference for EUR puts, with prices confined within a descending channel below 1.1700. Support levels are identified at 1.1634, 1.1590–1.1598, 1.1577, and 1.1492–1.1497—this presents a clear signal. The outlook for EUR/USD is negative, and the strategic position is to sell. Rallies into 1.1691–1.1703 present selling opportunities, with further potential up to 1.1735–1.1746 for higher-timeframe entries. A consistent daily breach above 1.1746, particularly exceeding the range of 1.1794–1.1813, would negate this perspective. On the downside, the initial objectives are 1.1615–1.1590, followed by a medium-term bearish target in the 1.1490–1.1500 range. While the pair remains under 1.1700 and the Fed is supported by robust data, the more favorable strategy continues to be shorting EUR/USD on strength instead of attempting to identify a bottom around 1.16.