The EUR/USD pair is currently positioned between 1.1690 and 1.1685, experiencing intraday fluctuations that have reached as high as 1.1720, following a notable rebound from the low of 1.1575. The rebound of approximately 115 pips reflects the market’s direct reaction to a change in political risk, rather than mere random fluctuations. The current price is confined within a narrow range of approximately 1.1665 to 1.1760, with 1.1575 serving as the present medium-term support level and 1.1760–1.1765 representing the initial significant resistance point. The structure exhibits a range-bound nature with a slight bullish inclination instead of a unidirectional trend. The significant macro shift is Trump’s reversal regarding Europe and Greenland. The potential imposition of 10% tariffs on eight EU nations starting February 1, coupled with discussions regarding military leverage concerning Greenland, has led markets to anticipate a new US-EU trade disruption. The dollar maintained its position as a traditional risk hedge, resulting in EUR/USD remaining near 1.16. Once Trump withdrew his support, discussed a “framework” concerning Greenland, and clearly dismissed military action, that particular fear premium was extracted from the dollar. The euro emerged as the clear beneficiary, driving EUR/USD closer to the 1.17 mark. Nonetheless, the elimination of that shock did not alter the fundamental rate narrative. The Fed’s “higher for longer” stance continues to maintain the US yield advantage, indicating that the pair is undergoing a correction rather than initiating a new structural bull leg.
On the EUR side, policy communication is now providing some assistance. ECB President Christine Lagarde indicates that inflation is manageable and that the existing monetary policy is “appropriate,” suggesting there is no immediate need for more aggressive cuts. Other Governing Council members have reiterated the same sentiment: resilience in the euro-area economy, manageable tariff risk for the time being, and inflation remaining stable. That message is supported by data: Germany’s ZEW investor sentiment index surged to 59.6 in January, marking the highest level in over four years. For EUR/USD, a ZEW near 60 indicates that significant investors perceive the eurozone outlook as enhancing rather than declining. The current situation supports the rationale for the euro maintaining its position near $1.17 rather than retreating towards the $1.14–1.15 range observed during previous periods of stress. The Federal Reserve continues to serve as the foundational element for the overall EUR/USD framework. Officials have made their stance unmistakably clear: there will be no aggressive easing unless inflation demonstrably trends back toward 2%. Markets are anticipating approximately 50 basis points of cuts for the year, expected to occur around mid-year or later, rather than being front-loaded. This maintains upward pressure on US yields. The dollar index remains stable at approximately 98.80, indicating no imminent collapse. For EUR/USD, this indicates that any rise above 1.1720–1.1740 continues to attract selling pressure, as the rate differential still favors the dollar while the ECB is perceived to be nearer to another cut compared to the Fed. The outcome indicates a limited recovery: EUR/USD may reach 1.17 with tariff relief, yet it faces challenges in establishing a consistent trend above 1.1760 unless there is a significant change in Fed expectations.
The immediate trajectory is now dependent on US economic indicators rather than developments from Davos. Market participants are closely monitoring the upcoming US GDP report, anticipated to show a quarterly growth rate of approximately 4.3%, in addition to jobless claims and the Core PCE deflator. A stronger-than-expected GDP and persistent PCE would support the Fed’s cautious stance, bolster US yields, and likely drive EUR/USD toward the lower boundary of the 1.1672–1.1700 range, with 1.1633 and 1.1550 in sight below on a breakout. A softer data mix would have the contrary effect: it would compel markets to anticipate earlier and more substantial cuts, weaken the dollar, and provide EUR/USD an opportunity to explore levels of 1.1735, 1.1760, and possibly the 1.18 region if stops are activated. The current dynamics of the pair around 1.17 indicate a market poised for upcoming releases to determine if the recent euro rebound is merely a tactical maneuver or the initiation of a more extensive repricing. Currently, EUR/USD is confined within a clearly established short-term range. Based on various assessments, the core band is identified as 1.1672–1.1760. Recent price movement has adhered to 1.1665–1.1672 as short-term support, while limiting upward movements in the 1.1735–1.1760 area. In the lower range, the significant reference lows are 1.1633, followed by 1.1600 and 1.1550. The 1.1550 zone corresponds with the earlier downside targets highlighted in the more pessimistic forecasts and would signify a more profound examination of the trend. Above the range, 1.1766 and 1.1808 emerge as extension levels where new selling pressure is expected to materialize if EUR/USD moves higher. The framework follows a traditional range-trading approach: selling into strength close to the upper band and purchasing on dips near the lower band has proven effective and is likely to continue until a significant macroeconomic event triggers a breakout.
Shorter timeframes provide a more detailed narrative of the same story. On the 2-hour chart, EUR/USD is maintaining its position above a rising trendline established in mid-January, with the 50-period EMA situated around $1.1675 and the 200-period EMA positioned slightly below $1.1650. These moving averages serve as multiple levels of support during pullbacks. The Fibonacci retracement from the January low identifies $1.1695 as the 38.2% level and $1.1672 as the 50% level – both areas where buying interest has consistently surfaced. The candlestick behavior around $1.1720–1.1740 indicates smaller bodies accompanied by upper wicks, suggesting a phase of consolidation and indecision rather than a clear rejection. On 4-hour views, the 20- and 100-period averages around 1.1685 are compressing, while the 200-period average near 1.1700 is capping gains, indicating that 1.17 serves as the precise pivot around which positioning is being adjusted. The RSI is currently positioned in the 50–54 range across intraday frames, indicating a corrective phase rather than signaling a trend reversal. Taking a broader perspective, the medium-term narrative continues to be evident. The Federal Reserve maintains a more aggressive stance compared to the European Central Bank. The market anticipates US growth maintaining a level close to 4% on an annualized basis, with the Federal Reserve expected to implement cuts at a later stage and at a more gradual pace. In contrast, the euro area is confronted with lower potential growth and a central bank that must navigate the challenge of sustaining resilience while addressing ongoing disinflationary pressures. The current situation suggests that a lasting EUR/USD breakout beyond 1.18 is unlikely unless the Fed makes a more significant shift than what is currently anticipated. The political risk balance has shifted concurrently. Trump has halted the immediate implementation of tariffs and placed the Greenland issue within a broader discussion framework with NATO. The recent developments mitigate the immediate risks facing the euro, clarifying why movements toward 1.16 are now drawing in buyers rather than inciting panic selling. In summary, macroeconomic factors limit the pair’s upward movement, while political dynamics now establish a more robust support level.
The favorable outcome is clear-cut. Should US data begin to fall short, with Core PCE showing a decline and the Fed adopting a more dovish stance while the ECB maintains its current rhetoric, EUR/USD may continue its upward movement past 1.1760. A clean hourly close above 1.1765 opens the path to 1.1808, and beyond that, the market would target the recent weekly highs around 1.1860–1.19. In that path, prior resistance at 1.1735–1.1760 transforms into support during pullbacks. The downside scenario hinges on two primary risks: unexpectedly robust US data and any resurgence in tariff disputes or geopolitical tensions. A decline beneath 1.1672, accompanied by a drop to 1.1633, would redirect attention towards 1.1600 and subsequently 1.1550. The 1.1550 level aligns with prior signal levels for long entries and represents the initial zone where medium-term buyers will evaluate the entire EUR/USD narrative. The 1.1575 low and the broader 1.15 handle are essential for sustaining a positive outlook on the euro. Analyzing the current situation – the bounce from 1.1575, the constrained range of 1.1672–1.1760, the Federal Reserve’s rate advantage, the European Central Bank’s stabilizing rhetoric, the alleviation of immediate tariff concerns, and the forthcoming US economic data – EUR/USD presents as a range-bound market with a slight upward inclination, rather than a definitive trend. For tactical traders, the strategy involves purchasing dips in the range of 1.1670–1.1630, aiming for targets in the vicinity of 1.1735–1.1760, while considering 1.1550 as the threshold where this approach becomes unviable. The current levels do not present an appealing opportunity for a decisive long or short position in this pair. The macro and technicals suggest maintaining a HOLD position: navigate within the range, manage risk carefully at the boundaries, and remain patient for a decisive move above approximately 1.1765 or below 1.1630 to support a strong trend position in EUR/USD.