EUR/USD is currently positioned within the 1.1660–1.1670 range, constrained within a narrow compression zone influenced by macroeconomic data, US political developments, and extended positioning dynamics. The pair has consistently upheld supports in the range of 1.1612–1.1620, while each effort to push higher encounters limitations below a substantial resistance zone spanning approximately 1.1686 to 1.1748. This is not mere background noise; it represents a critical pressure zone where a significant breakout could swiftly reach 150–200 pips once one side relinquishes control. The US Dollar Index, significantly influenced by the euro, is finding stability just above 99.00 following a prolonged decline, as the market continues to anticipate approximately two Fed cuts in 2026, beginning around mid-year. The immediate catalyst is US CPI: consensus anticipates 0.3% m/m in December, with headline and core both hovering around 2.7% y/y. A stronger print than 2.7% would suggest postponing or reducing cuts, bolster US yields, and generally drive EUR/USD lower from the existing 1.16–1.17 range. A softer print could undermine that argument; however, considering the current saturation of euro longs, any potential upside may still face challenges unless the surprise is significant.
The investigation into Fed Chair Jerome Powell’s earlier statements regarding building renovations has introduced a new layer of risk. On paper, challenging the independence of the Fed poses a downside risk to the structural standing of the USD as a reserve currency. In the short term, institutional stress has led to increased demand for the dollar as a safe haven, given that deep liquidity continues to overshadow long-term worries. That is why DXY may strengthen around 99 even with anticipated cuts approaching and why EUR/USD is having difficulty breaking decisively above 1.17 despite the previous dollar downtrend. While this legal uncertainty persists regarding the Fed, any resurgence in the narrative tends to limit euro gains and maintain demand for the dollar during periods of market stress. The ongoing tensions surrounding Iran contribute to a sustained elevated volatility premium. Trump’s remarks indicating that Iran’s leaders are seeking to “negotiate,” alongside his caution that “we may have to act before a meeting,” highlight the potential for rapid escalation in the situation. Every move towards military or tariff escalation drives global investors to seek USD liquidity and Treasuries, generally exerting downward pressure on EUR/USD. Although Europe may not be at the forefront of this conflict, the euro remains a currency that is sensitive to risk when compared to the dollar.
In Europe, the situation is clear: the growth outlook is weak, and the previous upward trend in EUR/USD has essentially come to a halt for over six months. The medium-term chart continues to display a series of higher lows starting from approximately 1.1550; however, each attempt to breach the 1.1686–1.1748 Fibonacci range has drawn in sellers. The area has emerged as a benchmark for the confidence of euro advocates. In the absence of a definitive upside breach of 1.1745–1.1750, the market will continue to regard this range as distribution territory, particularly given that the macro narrative remains uncertain in Europe’s favor. Futures data indicate the extent of congestion in the EUR trade. Large speculators currently possess the highest net-long euro exposure in approximately 18 months, whereas asset managers are close to 15-month peaks in net-long EUR. Significantly, gross long positions in both categories are at or approaching record highs. That is significant: when gross longs reach their peak, any further upside requires truly new bullish information, rather than merely relying on momentum. The situation presents a distinct risk: should EUR/USD falter once more around or slightly above 1.17, the most likely outcome shifts towards a position-clearing pullback instead of a straightforward upward movement.
At the dollar index level, large speculators continue to hold a net-short position on DXY, although this short has been reduced by approximately three-quarters in recent weeks, now standing at around -38k contracts. Asset managers have transitioned to a net-short position in USD index futures. The phase of significant anti-dollar positioning is now in the past; the imbalance is contracting instead of growing. For EUR/USD, this indicates that the straightforward opportunity—going long on the euro against a distinctly weak USD—is no longer available. The dollar is positioned to react strongly to any positive developments, while the euro faces risks due to its significant ownership levels. The current technical landscape for EUR/USD aligns with this positioning risk. On the downside, buyers have maintained a support zone established by previous swing highs and lows between 1.1612 and 1.1620, with additional support at 1.1585 and a wider base around 1.1550. On the topside, several technical layers are closely positioned above the current level: the 100-day moving average is positioned just below the current price, approximately 1.1663–1.1664, establishing a critical threshold for bullish sentiment in the near term. The 100-hour moving average at approximately 1.1668 and the 50-EMA close to 1.1695 create a tight range that often alternates between acting as support and resistance.
The 200-hour moving average, located around 1.1697–1.1700, establishes the upper boundary of the short-term range. Meanwhile, the broader resistance zone between 1.1686 and 1.1745 has been a ceiling for the pair over the past several months. Previously, buyers successfully surpassed the 100-day and 100-hour averages after holding the 1.1620 level, but the upward movement halted just below the 200-hour average, and the ensuing strength of the dollar pulled the pair back toward that cluster of moving averages. The observed pattern—break, fail near the upper boundary of the range, followed by a rotation back—aligns with a market that is consolidating rather than exhibiting a clear trend. On the four-hour chart near 1.1660–1.1670, the candles are small, displaying mixed wicks, while the RSI remains in the mid-40s. The current combination indicates a decline in bullish momentum, yet there hasn’t been a complete transition to bearish sentiment. This represents a traditional pre-event compression pattern. The market is poised for a catalyst. If EUR/USD manages to surpass and maintain a position above approximately 1.1745–1.1750 on a daily closing basis, short covering could propel the pair higher, but the threshold remains elevated. The downside scenario is clearer: repeated failures near resistance and a daily close beneath 1.1610 would shift focus to 1.1585 and 1.1550. Considering macroeconomic factors, positioning, and pricing, the risk balance at 1.1660–1.1700 leans downward. From a trading perspective, fading strength into the 1.1695–1.1745 range remains favored, with EUR/USD at current levels viewed as a Sell rather than a Buy or passive Hold.