EUR/USD begins 2026 under markedly different conditions compared to the previous year. Throughout the majority of 2025, the US Dollar experienced a decline of approximately 14% against the euro, as market participants anticipated a complete Federal Reserve easing cycle alongside a more subdued trajectory for US economic growth. The shift propelled EUR/USD from concerns of parity in late-2024, briefly surpassing 1.1200, before the pair encountered resistance as the Fed initiated rate cuts, triggering the classic “buy the rumour, sell the news” phenomenon. Since Q4 2025, the Dollar Index has ceased its trending behavior and established a range between 97.94 and 100.22, whereas EUR/USD has transitioned from a clear directional narrative into a more gradual, grinding phase. The primary takeaway as we approach 2026 is that the straightforward EUR/USD gains from the 2024 lows are now in the past; the upcoming phase will need to navigate a data-influenced, bidirectional macro environment. Currently, EUR/USD is positioned in the range of 1.1720–1.1740, having struggled to maintain the late-December peaks exceeding 1.1800. The pair has breached a previous ascending trendline established from earlier lows and is evidently trending downward in the initial days of 2026. Immediate resistance is positioned around 1.1764, just below the unsuccessful 1.1800 area, which now serves as the primary threshold that euro bulls must surpass with a daily close to reclaim dominance. The market is closely monitoring 1.1700 as the next critical level to watch. A clean break and daily close below 1.1700 would indicate that the recent movement is not merely fluctuations within a range, but rather a significant transition back toward Dollar strength. Below 1.1700, the significant structural level is the Q4 floor near 1.1500, which has been tested multiple times and has effectively established the lower limit of last year’s EUR/USD range. The 1.1500 level is where medium-term buyers are likely to enter significantly if we reach that point. Currently, the pair is positioned in the upper range of the 1.1500–1.1800 corridor, although momentum appears to be declining.
The Dollar Index exhibited a sideways movement throughout the latter half of 2025 following an unsuccessful spike earlier in the year. On the monthly and weekly charts, DXY demonstrates three weeks of support maintaining around a Fibonacci area at 97.94, while the 100.00–100.22 band — previous support now acting as resistance — limited every upward movement last year. The 100 handle has become the critical level that bulls need to surpass in order to initiate a significant trend for the USD. Once surpassing the 100–100.22 range, the subsequent clear objective is the 102 area. While DXY remains confined within the range of approximately 98 to 100, a sustained breakout in EUR/USD appears improbable; anticipate false breaks and mean-reversion strategies to prevail. At present, DXY is positioned around 98.40, indicating a mid-range status, which corresponds with EUR/USD remaining in the 1.17s instead of experiencing a significant upward surge or a downward plunge. The takeaway: for those bearish on EUR/USD, significant momentum will not commence until the DXY consistently registers and maintains levels above 100 once more. The most recent data set highlights a consistent disparity. The Eurozone manufacturing PMI for December has been adjusted downward from 49.2 to 48.8, marking the lowest level since April and indicating a definitive contraction as it falls below the 50 threshold. Germany, the central industrial powerhouse of the bloc, recorded a notably lower figure of 47.0, underscoring persistent weakness in orders, backlogs, and employment levels. France stands out as the sole modest bright spot, with manufacturing PMI recorded at 50.7, just above the threshold for expansion. Across the Atlantic, US manufacturing is not experiencing significant growth, yet the expected S&P/ISM manufacturing readings of approximately 51.8 remain above the threshold for expansion. The US labour market continues to demonstrate resilience: the November 2025 Nonfarm Payrolls report indicated approximately 199,000 new jobs, with the unemployment rate standing at 3.7%. The situation where Eurozone factories remain below the 50 mark, contrasted with the resilience of US industry and employment, indicates a slight growth and yield advantage for the USD. While that gap remains, any rallies in EUR/USD reaching the high-1.17s and surpassing 1.18 are more likely to be met with selling rather than pursuit.
The short-term technical indicators align seamlessly with the overarching macroeconomic narrative. EUR/USD has already breached a previous trendline, validating that the late-December surge above 1.1800 was a temporary move rather than the initiation of a new bullish phase. Immediate resistance is concentrated near 1.1764 and the recent spike zone at 1.1800. As long as daily closes remain beneath that range, the most favorable direction is downward. The current attention of the market is directed towards 1.1700. The round number serves as a significant psychological and technical pivot; a definitive close below this level creates potential for a movement toward 1.1680–1.1650, where option strikes are heavily concentrated. The identified strike areas are currently being utilized by derivative traders to establish put positions, indicating that institutional investors are preparing for potential further declines. If US data in the upcoming week shows strength, particularly with Nonfarm Payrolls hitting or exceeding the 200,000 mark once more, the sell-off may intensify, potentially bringing the 1.1500 Q4 base back into consideration. On the other hand, a definitive rebound above the 1.1764–1.1800 range would compel short positions to reevaluate their stance and might initiate a squeeze towards the mid-1.18s. However, this is not the prevailing outlook as long as economic data from the Eurozone continues to underperform. Event risk cluster: ISM, HICP, CPI, and NFP as the upcoming catalysts for EUR/USD The upcoming calendar is packed with significant releases that will directly impact EUR/USD. In the United States, we can expect the release of several key indicators including ISM Manufacturing PMI, ISM Services PMI, ADP employment figures, Trade Balance, Consumer Credit, and notably, the December Nonfarm Payrolls along with the initial January Michigan Consumer Sentiment reading, all scheduled to be published in a condensed timeframe. In the Eurozone context, the primary metric to watch is the Harmonised Index of Consumer Prices (HICP), starting with Germany’s HICP, and subsequently looking at the overall Eurozone figure. There is an expectation for a moderation in Eurozone inflation, which could lead the European Central Bank to adopt a more dovish stance, subsequently putting pressure on the euro. If that softer HICP aligns with a resilient US labor print around or above the previously observed 199,000 mark, the rate-differential argument shifts further in favor of the Dollar, supporting a stronger DXY and a weaker EUR/USD setup. Conversely, a notable downside surprise in US employment figures, coupled with stronger-than-anticipated inflation in the Eurozone, would negatively impact the USD narrative and potentially drive EUR/USD back above 1.18. The risk profile within this data cluster exhibits asymmetry: the market is currently aligned with expectations for Federal Reserve cuts in 2026, meaning that robust US figures have greater potential to surprise compared to weaker outcomes.
Cross-examinations: EUR/USD compared to GBP/USD, GBP/EUR, and USD/JPY Cross-asset and cross-FX price action indicates that the euro, alongside the dollar, is currently the weaker component. GBP/USD is currently positioned around 1.3480–1.3490, exhibiting a clearer bullish trend in the recent weeks. Bulls have successfully defended pullbacks from the 1.3000 area, while resistance has been capped around 1.3500 thus far. Support levels in Cable are positioned at 1.3414, 1.3355–1.3371, and 1.3312, demonstrating a favorable pattern of higher lows. In relation to the euro, the pound is maintaining a position near 1.1477 in GBP/EUR, indicating that EUR/GBP continues to face pressure as UK data strengthens. The UK manufacturing PMI has rebounded to approximately 50.6, marking the highest level since September 2024. While this figure remains modest, it is evidently stronger than the Eurozone PMI, which stands at 48.8. The divergence observed, along with a recent rate cut by the Bank of England that has positively influenced sentiment by alleviating budget-related uncertainty, results in the euro underperforming not only against the USD but also against the GBP. In the context of the Dollar’s performance, USD/JPY is currently positioned around 156.50 following a rebound from the 140.00 level earlier. The overarching bullish trend remains intact, even in light of a December rate hike by the Bank of Japan. The 160.00 level continues to serve as a significant political and intervention threshold. However, as long as USD/JPY maintains higher lows, this pair stands out as a key indicator of Dollar strength. The overall indication from GBP/USD, GBP/EUR, EUR/USD, and USD/JPY is clear: the euro exhibits a structural weakness compared to both GBP and USD, with JPY continuing to serve as the funding currency in the backdrop.