The sharp adjustment following Kevin Warsh’s appointment to lead the Fed has impacted EUR/USD precisely at its most susceptible point: amid inflated valuations and a strong consensus anticipating a weaker dollar. The cross has recently surged to new four-year highs exceeding 1.20, following a 4% increase from the January low of approximately 1.1598. Meanwhile, the Dollar Index is positioned around 97.4, and US indices such as the S&P 500 at 6,974.40 and the Nasdaq at 23,612.61 continue to be supported by AI and liquidity trades. As the markets adjusted to a more hawkish stance from the Fed, the prevailing narrative of a “dollar decline is dead” began to falter. The EUR/USD pair exhibited a classic bull-trap, reaching new highs above 1.20, only to face a swift rejection and a bearish monthly reversal. That is not mere noise; it is positioning compelled to recalibrate at a fundamentally significant level. From a purely price-action perspective, the recent upward movement in EUR/USD exemplifies classic late-cycle behavior. The pair established a base at 1.1598 in January, precisely at the confluent uptrend support identified by various technical analyses. The asset experienced a rally exceeding 4.3%, marking an outside-weekly reversal from the lows and compelling short positions to cover. The momentum drove the asset directly into a significant resistance zone ranging from 1.1917 to 1.2020. The range is characterized by the 2025 swing high, the complete extension of the 2022 advance, and approximately the 38.2% retracement of the downtrend from 2008 to 2022. This is not merely a random line on the chart; it represents a multi-cycle pivot where long-term sellers are highly motivated to engage, particularly when the macro environment shifts in favor of the dollar. The market’s slight overshoot above 1.20, followed by a month-end close below that level, indicates that the breakout served as a means to distribute euros rather than to establish new structural long positions.
On the intraday tape, EUR/USD is exhibiting precisely the behavior anticipated following a failed breakout. Economies.com identifies a short-term resistance level near 1.1930, with the market beginning to treat this zone as a ceiling for corrective rebounds instead of a foundation for another upward movement. Simultaneously, their analysis indicates a potential decline toward 1.1800 as the likely trajectory if the pair fails to maintain trading above the 1.1930 level. This is consistent with the overall trend: following an extended rally, the initial support typically examined during a reversal is the prior breakout area. The current position is in the 1.18 vicinity, aligning with the lower boundary of the immediate daily range noted by multiple desks. In straightforward terms, as long as EUR/USD remains constrained below approximately 1.1930–1.1950 on a closing basis, each intraday rebound appears to present an opportunity to sell into strength rather than signaling the beginning of a new bullish phase. The broader perspective on the technical roadmap for EUR/USD presents a distinct and straightforward scenario. On the upside, the 1.1917–1.2020 range represents a critical resistance level: it encompasses the 2025 peak, the complete extension of the 2022 movement, and a significant Fibonacci retracement of the long-term downtrend from 2008. Above that, secondary resistance levels are positioned at 1.2218 (the 2021 high-week close) and 1.2350 (the 2021 swing high). However, these levels will only be relevant if the cross can close decisively above 1.2020 and maintain that position. On the downside, the initial significant weekly support is currently positioned at 1.1746/1.1775, aligning with the targeted yearly open and crucial weekly closes for 2025. The medium-term bullish threshold remains at the 1.1598 level, representing the January low close and the initiation point of the previous impulsive rally. A consistent weekly close beneath 1.1598 would indicate that the upward trend from 2025 has probably reached its peak, suggesting a more significant correction towards 1.1497 and subsequently 1.1394 is in progress. As long as EUR/USD remains within the range of 1.1746 and 1.2020, the pair is effectively experiencing a significant compression between key resistance and ongoing support.
The driving force behind this reversal setup is clear-cut. Kevin Warsh is perceived as a hawk: more attuned to inflation risks, more doubtful of extended balance-sheet expansion, and significantly less accepting of policies resembling open-ended liquidity support. Following the nomination to succeed Powell, there was a swift adjustment in market expectations regarding the Federal Reserve’s trajectory, leading to fewer anticipated rate cuts, an elevated terminal rate, and a more stringent approach to the balance sheet. The immediate effect was an increase in US yields and the dollar, with the Dollar Index rising above 97.3–97.4. In the case of EUR/USD, it indicates that both components of the pair are experiencing movement: the euro encounters significant multi-year resistance while the dollar is re-establishing its attractiveness as a safe-haven asset and in terms of yield differentials. The recent broad risk-off episode significantly impacted gold, which fell from $5,608 to around $4,400, while silver dropped from over $120 to lows in the low $70s. This creates a macro environment where investors are increasingly selective regarding carry trades and are less inclined to short the dollar, especially at multi-year lows. The timing of the turn in EUR/USD is significant. The movement above 1.20 occurred precisely at the peak of discussions regarding a potential structural collapse of the dollar. Equity markets remained close to record highs, the cryptocurrency sector experienced a significant downturn, and gold prices surged dramatically before experiencing a sharp decline. Market participants seeking a straightforward anti-dollar strategy turned their attention to the euro, as the trend appeared linear and the overarching economic narrative—Federal Reserve rate cuts, weak US economic indicators, and political uncertainty—seemed to support this approach. The issue arises not when trends lack belief, but rather when they are universally accepted and embraced.
The bearish monthly reversal in EUR/USD at four-year highs, following a 4% increase from 1.1598, exemplifies the pattern anticipated when substantial long positioning encounters a new macroeconomic shock. At this juncture, any effort to resurrect the notion that the “dollar is finished” while prices remain constrained beneath 1.1917–1.2020 is more of a perilous presumption than a perspective grounded in data. The upcoming sessions are filled with catalysts that could determine if EUR/USD will ascend or decline. In Europe, the upcoming ECB meeting will be closely examined for any indications that officials may be uneasy with the euro’s strength at approximately 1.20, especially following a significant tightening in global financial conditions influenced by the Warsh nomination and the downturn in metals. If Lagarde adopts a dovish stance, even in a subtle manner, it undermines the euro component of the pair precisely at resistance. In the United States, ISM data has indicated that the dollar is receiving support from stronger-than-anticipated figures, and the forthcoming Non-Farm Payrolls report will be essential for confirming the market’s transition to a more hawkish Federal Reserve trajectory. A robust labor report and steady wage growth would support the notion that the Fed may not be able to ease as much as the market has anticipated, maintaining demand for the dollar and putting EUR/USD at risk of a more significant pullback toward 1.1746 and 1.1598. Subpar data could lead to a different outcome, potentially providing bulls with one final opportunity to challenge the 1.1917–1.2020 resistance level.
In summary, the prevailing evidence suggests a prudent and defensive approach towards EUR/USD at this juncture. The pair has recently turned away from a multi-year resistance range at 1.1917–1.2020, showing a distinct bearish monthly reversal after a brief breach of 1.20. Currently, it is operating in a context where the Fed’s outlook has become increasingly hawkish, and the Dollar Index remains solidly above 97. Currently, immediate support stands at 1.1746, while medium-term support is positioned at 1.1598. Neither level has been breached, indicating that a long-term trend reversal has not been confirmed at this stage. Within that context, the most straightforward interpretation is that movements toward 1.1917–1.1930 represent sell zones rather than breakout opportunities, with 1.1800, followed by 1.1746 and 1.1598, serving as increasingly significant downside targets. Given the technical map and macro backdrop, the assessment on EUR/USD at this point leans towards a bearish stance with a preference for selling on rallies rather than a buy-and-hold approach. While the pair remains beneath the 1.1917–1.2020 resistance level, the onus is on the bulls to demonstrate strength. Current price movements indicate a need to acknowledge the downside risk, potentially revisiting the mid-1.17s and possibly the 1.16 level, especially if US data and Fed expectations continue to support the dollar.