The EUR/USD pair has transitioned from being viewed as a “parity candidate” to a relatively safe option as the political risks driven by the US are being reassessed. The pair has increased by over 1% in the last two sessions and is currently trading in the range of 1.1710–1.1720 following a clear upward breakout. Buyers are responding to heightened tariff discussions and the situation in Greenland, rather than any significant growth in the Eurozone. Capital is shifting away from the epicenter of the shock – the US Dollar – and into alternatives, with the Euro emerging as one of the primary beneficiaries alongside gold. The movement is not mere randomness: it is a result of a technical breakout and is supported by a distinct macro narrative centered on tariffs, Davos discussions, and expectations for rate cuts. The Dollar index is currently positioned between 98.58 and 98.60, maintaining a position slightly above a significant Fibonacci cluster at 98.547. The price has consistently held within that range, exhibiting spinning tops and doji candles, indicating that while selling pressure is being absorbed, it has not yet been completely reversed. Support is firmly established in the 98.43–98.50 range, with 98.729 marking the initial significant resistance level. Should a rebound occur, subsequent targets include 98.876 and 99.022. The momentum appears to be neutral, as the RSI hovers around the 50 mark and both short and long moving averages are converging. The fundamental overlay is what limits the potential for growth: two rate cuts are currently anticipated for 2026, with the initial one moved to June. Housing indicators are showing signs of weakness, and the Dollar is at the forefront of the tariff dispute. In the absence of a significant positive surprise from US data or a clear easing of tensions surrounding Greenland and trade, any recovery of the DXY above 99.00 is expected to encounter resistance.
In light of the recent volatile intraday movements, EUR/USD continues to operate within a broad sideways range, facing resistance in the vicinity of 1.1819–1.1820 and finding support around 1.1509–1.1510. The recent movement has effectively propelled the pair from the lower range of that corridor back toward the upper limit. This is significant as the consistent testing of both edges has solidified the range as the main framework. The ongoing rally indicates that during periods of stress, the market prefers to value the pair at 1.17–1.18 rather than 1.15–1.16, reflecting a nuanced momentum shift that favors the euro. As long as the level of 1.1819 remains intact on a sustained basis, the current price movement should be interpreted as a bullishly-biased range rather than a definitive long-term uptrend. The pair has recently moved out of a descending channel to the upside, indicating a possible trend reversal instead of merely a bounce. The breakout has propelled the spot to approximately 1.1717, positioned just beneath the 0.236 Fibonacci retracement level at 1.17224, calculated from the most recent downswing. The Fibonacci band serves as the initial technical assessment for bullish sentiment. The resistance level above becomes increasingly concentrated. The 1.1760 level has previously served as a resistance point in the earlier movement, while 1.1766 and 1.17688 further confirm this area as a short-term supply zone. The next significant target is the upper boundary of the broader range at 1.1819–1.1820. Should that region be decisively breached, the subsequent extension levels are positioned at approximately 1.18488 and 1.18965. The current momentum appears to be extended, as indicated by the RSI exceeding 70 on significant intraday charts. This suggests a potential risk of the market experiencing a pause or correction prior to advancing through all these levels in a single movement.
On the downside, the market has established a distinct series of support levels. The initial level stands at 1.1710, serving as a pivotal point in the ongoing consolidation; a closing breach below this level would signal the first indication that the breakout may be losing momentum. Subsequent to that, 1.16943, which represents the 0.382 Fibonacci retracement, serves as the next point of reference. A measured retracement to the 1.1694–1.1672 range that attracts strong buying interest would align with a positive outlook. The 1.1656 and 1.1633 region emerges as a pivotal medium-term demand zone, particularly if selling intensifies, as it has historically drawn in buyers. Further down, 1.1616 and particularly 1.1583–1.15834, which corresponds with a 200-period moving average cluster, represent the critical medium-term thresholds. A clear breach beneath 1.1583 would introduce the potential for a decline back to the 1.1509 support level, significantly undermining the bullish outlook for the upcoming weeks. The primary driver of the recent EUR/USD increase is rooted in political factors rather than solely economic ones. The United States has issued a warning of a preliminary 10% tariff effective from February 1 on imports from approximately eight European nations, contingent upon the realization of support for the acquisition of Greenland, with the potential to escalate those tariffs to 25%. Additionally, the imminent risk of tariffs nearing 200% on French wine, contingent upon France’s participation in a US-led “Board of Peace,” has been interpreted as a clear instance of economic coercion. The recent statements have heightened the perception of political risk in the US, leading investors to decrease their exposure to the Dollar. Davos has become the center of attention, as market participants closely monitor Trump’s speech for any signs of escalation or a shift in the rhetoric concerning Greenland and trade. Headlines that bolster the confrontation narrative generally lead to a depreciation of the USD and an appreciation of EUR/USD, whereas any indication of compromise may prompt a corrective pullback in the pair.
The macro calendar supports the recent price movement rather than opposing it. The recent ADP weekly employment figure in the US shows approximately 8,000 job additions, a decline from the previous 11,300. While this indicates a softer labor market, it is not alarming. Current market expectations indicate approximately two 25-basis-point rate reductions in 2026, with the initial adjustment now anticipated in June rather than earlier in the year. The indicators related to housing and investment highlight the impact of stringent financial conditions: Pending Home Sales are anticipated to be approximately –0.3% month-on-month following a notably robust +3.3% from the previous reading, while Construction Spending is projected to be around 0.1% after a prior figure of 0.2%. The data suggests that a robust Dollar is unlikely in the face of heightened political risk. In Europe, the initial meeting of the European Central Bank in 2026, scheduled for 3 February, is anticipated to maintain the deposit rate at 2.00%. Market expectations suggest a probability in the mid-90% range that this rate will remain unchanged over multiple meetings. A central bank that is viewed as consistent and impartial regarding interest rates serves as a valuable asset, especially when the counterpart is experiencing political instability. In this setup, the euro is functioning as the more favorable aspect of the trade, despite not being a traditional safe haven. The source of the shock lies within US policy, leading to risk-averse flows retreating from USD instead of EUR. Investors seeking alternatives are shifting their focus toward assets and currencies that remain outside the core of the tariff dispute while still being supported by robust institutional frameworks. Eurozone bonds are positively impacted by this, as is the currency. The ECB’s consistent position at 2.00% helps to maintain stability in Europe, whereas the US is currently navigating discussions surrounding tariffs, the independence of the Fed, and upcoming appointments. While that asymmetry remains in place, EUR/USD is likely to experience support during dips instead of quickly returning to the lower end of the range.
The market has established a narrow arena for intraday positioning. The 1.1760 level serves as the primary reference point following its role in limiting the prior extension. The range of 1.1766–1.17688 above is likely to draw in profit-taking and new short positions from traders hesitant to pursue a move with an already extended RSI. A break and hold above that band reintroduces the levels of 1.1808–1.18089 and subsequently the ceiling at 1.1819–1.1820. On the downside, the 1.1710 and 1.16943 cluster represents a key area where dip buyers are likely to engage, provided that developments from Davos and tariff discussions do not indicate significant de-escalation. A deeper retracement to 1.1672 and 1.1633 would remain aligned with a bullish outlook, provided that price encounters strong demand at those levels. A movement through 1.1583 with sufficient momentum would clearly alter the intraday bias to a neutral or negative stance.