The EUR/USD pair is oscillating within a tight range of 1.1645–1.1660, slightly above a one-month low of 1.1618 and near the clustered support area of 1.1615–1.1635. Ongoing assessments of this zone since the previous week, along with the presence of long lower wicks on the latest 2-hour and 4-hour candles around 1.1620, indicate that there are buy orders in place; however, these orders appear to be more protective than assertive. The pair is currently confined within a descending channel that has formed since the late-December highs, while it continues to adhere to a wider rising trend line established in November. As long as spot remains above approximately 1.1590–1.1600, the medium-term uptrend is technically intact; however, the price action is evidently leaning toward the lower half of the recent 1.1500–1.1750 range. US inflation has shifted from being the primary driver it was in 2025, yet it continues to influence the dynamics of EUR/USD. December headline CPI came in precisely as anticipated at 0.3% month-on-month and 2.7% year-on-year, whereas core CPI decelerated to 0.2% m/m and 2.6% y/y, marking a four-year low. The interplay of a cooling core and steady headline typically exerts downward pressure on the dollar while bolstering EUR/USD. However, the market’s response has been subdued, as the data fails to significantly alter the trajectory of the Federal Reserve’s policy. Fed funds futures continue to indicate a hold at the late-January meeting, with the likelihood of a March rate reduction now reduced to approximately 25% from around 40% just a week prior. The outlook for the pair is clear: inflation is decreasing, yet not rapidly enough to trigger an early easing cycle, which allows the dollar to maintain its rate advantage, resulting in EUR/USD remaining constrained.
The labor backdrop aligns with the CPI narrative, providing support for the USD during pullbacks. The most recent ADP four-week average indicates approximately 11.75K new jobs per week, continuing a five-week streak of favorable results. This is not indicative of a hiring surge; rather, it reflects a stable employment landscape without clear pressures that would compel the Federal Reserve to take emergency measures. On the demand side, markets are closely monitoring US Retail Sales: the consensus anticipates a 0.4% month-over-month rebound in November headline sales following a flat October, with ex-auto sales also projected at 0.4%. A print near or above those levels would reinforce the “soft-landing” narrative – inflation easing, growth holding – which is precisely the scenario that enables the Fed to maintain its position and supports two modest rate cuts in 2026 as a base case rather than a swift easing cycle. The EUR/USD pair is experiencing limited downside in real yields due to strong US demand, which ensures that any potential dollar selloff remains shallow and temporary. The dynamics surrounding the Federal Reserve have shifted from being a peripheral concern to a central factor influencing the USD risk premium. The criminal inquiry by the Department of Justice regarding Jerome Powell’s testimony on Fed building renovations, along with President Trump’s public pressure for lower rates, initiated a significant shift in the dollar at the beginning of the week. Powell addressed the situation through a video, alleging that the administration was undermining the Fed’s independence. Shortly thereafter, a coalition of central bank leaders, comprising the ECB, BoE, and BoC, released a joint statement affirming that central bank independence is fundamental to maintaining price, financial, and economic stability. The coordinated support alleviated the immediate turmoil, yet it underscored the tail risk: should political pressure on the Fed intensify, markets will adjust to reflect a more volatile US policy environment. Currently, that tension is, interestingly, favorable for the dollar: investors are hedging by purchasing both Treasuries and USD, while gold captures the straightforward “anti-system” flow. EUR/USD is thus trading against a USD that benefits from both rate support and a safe-haven demand associated with policy uncertainty.
The US Dollar Index illustrates the challenges faced by EUR/USD in breaking higher, even in the context of softer core inflation. On the 2-hour chart, DXY is fluctuating between 99.10 and 99.20, slightly below a short-term resistance range at 99.26 to 99.31. Additionally, a significant resistance level is established at 100.22, which has consistently limited upward movements in the latter part of 2025. On the downside, support is positioned at the 23.6% Fibonacci retracement around 99.00, followed by levels at 98.80 and 98.58. The 50-period moving average is positioned well above the 200-period, and the RSI hovering between 55 and 60 indicates a positive momentum that is not yet overstretched. The weekly DXY chart indicates a significant higher-low base following the selloff in the first half of 2025, characterized by a pronounced lower wick on the current candle, suggesting that buyers have successfully defended support and are driving the index back toward recent highs. The interplay of a constructive weekly structure, robust short-term moving averages, and a tight consolidation beneath resistance indicates a persistent upside risk for the dollar. Given that the euro constitutes 57.6% of the DXY basket, a breakout above 99.60 and approaching 100.22 would likely exert renewed pressure on the supports of EUR/USD. Currently, EUR/USD is positioned between a tactical downtrend and a medium-term base that remains intact. On the daily chart, the pair has been trending downward within a descending channel since the late-December highs, with upward movements stalling near 1.1685–1.1700 and lows gathering around 1.1615–1.1635. Several desks recognize an upward trend line originating from November, which presently intersects slightly above 1.1600. This forms a confluence zone with the early-December low around 1.1600 and the one-month low at 1.1618. The 1.1590–1.1618 range has become the critical pivot point: maintaining this level allows the overall positive trend to continue; breaching it could lead to a decline towards the 1.1542–1.1550 zone, followed by the significant 1.1500 level that provided strong support in November. Intraday, the 4-hour MACD remains largely unchanged, reflecting a lack of clear direction, while RSI has dipped below 43 on one significant feed, suggesting a decline in demand but not reaching a point of capitulation. The price is currently positioned in the lower half of the channel, indicating a statistical likelihood of another test around 1.1615–1.1600 prior to any significant rebound.
Immediate support is positioned at 1.1635, which is the intraday low, extending down to the range of 1.1615 to 1.1618, reflecting one-month lows noted by multiple desks. Below that, 1.1593–1.1600 serves as a composite floor where the November trend line, previous lows, and channel bottom intersect. A decisive move and a close beneath approximately 1.1590 would reveal 1.1542–1.1550 as the subsequent demand zone, with 1.1500 serving as the significant support level from November that delineates the lower boundary of the existing structural range. On the topside, initial resistance is observed at 1.1669–1.1675, where the descending channel top on certain 4-hour charts aligns with a recent failure zone and a local 2-hour trendline. Above that, 1.1685–1.1710 serves as the initial significant resistance level: it encompasses previous swing highs, the 50-period moving average on intraday charts, and a previously identified weak area in the price action. If bulls can achieve a daily close above 1.1700, the subsequent targets are positioned around 1.1740 and then within the range of 1.1740–1.1780, where earlier highs from late December and the 200-period averages converge. As long as neither of these boundaries experiences a significant break, EUR/USD continues to be influenced by US data and the prevailing sentiment towards the dollar, maintaining its range-trade status. Momentum and trend indicators support the notion of a pair that is stable yet showing a tendency to decline. On the 4-hour chart, the 50-period moving average is positioned slightly above the current level, approximately in the 1.1690–1.1710 range, serving as dynamic resistance following the rejection observed in early January. The 200-period moving average remains elevated, providing an additional resistance level to the 1.1740–1.1780 range. This setup – with the price positioned below both moving averages and the shorter average beginning to decline – is characteristic of a developing corrective phase within a broader range, rather than indicative of a new bullish movement. The RSI across various intraday feeds remains in the range of 45 to 50, indicating a neutral stance without any significant oversold conditions. Nonetheless, the RSI has not managed to surpass 60 during recent recoveries, suggesting that buyers currently lack the momentum needed to achieve a sustained push above 1.1700. The technical analysis indicates that, alongside a nearly flat MACD and a descending price channel, it is more probable that bounces will be sold rather than breaks pursued.
Cross-checks against other majors indicate that EUR, rather than USD, represents the weaker side of the EUR/USD pair. GBP/USD is maintaining a positive framework above 1.3390–1.3414, establishing potential higher lows in spite of the prevailing US conditions. The USD/JPY has reached new yearly highs and is approaching the 160.00 mark, with previous resistance at 159.19 now presenting an appealing opportunity for dip buyers. The divergence highlights the essential narrative: when investors seek to convey USD strength, they prefer EUR/USD and USD/JPY instead of offloading sterling. When expressing USD weakness, there is a greater reliance on GBP/USD compared to EUR/USD. As long as this pattern continues – with USD/JPY steadily rising and GBP/USD maintaining crucial support levels – EUR/USD is likely to lag on the upside and react excessively on the downside in response to each US data release or Fed announcement.