The EUR/USD pair is currently positioned at approximately 1.179, having struggled to maintain the breakout beyond 1.2000 and retreating from the four-year peak of 1.2085. The price has recently reached a two-week low close to 1.1777, with intraday support forming around the range of 1.1775–1.1780, as buyers attempt to maintain that level for the second consecutive session. The pair continues to maintain its position above the 38.2% retracement level from January, situated around 1.178, and stays well above the 200-day mark at 1.1600. However, the momentum has transitioned from a clear uptrend to a corrective phase, which could prolong if the current support at 1.1775 is breached. The USD is currently demonstrating behavior inconsistent with a currency poised to forfeit its yield advantage. The dollar index is currently positioned between 97.7 and 97.8, having retreated from a high of 99.8. It remains above the 61.8% retracement level at 97.62, with support identified at 97.22 and further backing at 96.34. The 50-EMA remains steady at approximately 97.7, while the 200-EMA, positioned around 98.3, is limiting upward movement. Meanwhile, the RSI’s gradual ascent towards 60 indicates a resurgence of buying pressure rather than a decline. The current situation, with DXY holding steady just below 98 and exhibiting a defined support staircase, sustains demand for the dollar and restricts the potential for EUR/USD to recover, particularly while the Fed maintains a non-dovish stance.
Fed governor Lisa Cook has clearly stated her position: with inflation remaining a concern, she does not support another rate cut without more evident signs of disinflation. Simultaneously, the nomination of Kevin Warsh, who advocates for a reduced Fed balance sheet and a more measured approach to rate cuts, indicates a central bank that will refrain from inundating the system with liquidity. The dollar index, maintaining a position close to 97.8 in this context, aligns with expectations: it is not experiencing a dramatic rise, but rather a currency that gains favor each time the market misjudges cuts and subsequently needs to adjust. On the euro side, EUR/USD is responding to a central bank that maintains its position is “in a good place” despite the ongoing decline in inflation. The ECB maintains the main refinancing rate at 2.15% and the deposit rate at 2.00%, with no reductions anticipated in this meeting; however, the context has evolved. Headline euro-area inflation decreased to 1.7% year-on-year in January, down from 1.9% in December, and is now distinctly below the 2% target. In December, retail sales experienced a month-on-month decrease of 0.5%, which was below the anticipated decline of 0.2%. Additionally, the previous month’s figures were adjusted to reflect a slight gain of 0.1%, down from the earlier reported 0.2% increase. The interplay of weak consumption, softer prices, and an exchange rate that recently exceeded 1.20 brings the Governing Council nearer to discussions regarding the necessity of a cut later this year.
The sole genuine positive development regarding the euro is the performance of German industry. Factory orders surged by 7.8% in December, contrasting sharply with an anticipated contraction of 2.2%. Additionally, November’s figures were adjusted upward to 5.7%. That indicates there remains vitality in the core manufacturing sector; however, a single robust orders report does not counterbalance a consumption shock or a disinflationary trend. With EUR/USD already having tested above 1.2000 and then sliding back toward 1.1800, the currency’s previous strength now becomes a concern: a robust euro coupled with inexpensive Chinese exports and 1.7% inflation strengthens the case for a more dovish ECB stance. Across the Atlantic, the USD is receiving support from a mixed yet still service-oriented US economy. In January, private payrolls from ADP increased by just 22,000, falling short of the anticipated 48,000 and a revised prior figure of 37,000, indicating a slowdown in hiring momentum. By itself, that would exert downward pressure on the dollar. However, the services sector is not experiencing a collapse. The ISM Services PMI recorded a value of 53.8 for January, aligning with the prior month and surpassing the consensus estimate of 53.5. The prices-paid component increased to 66.6 from 65.1, indicating persistent inflation pressures within the sector, whereas the Employment Index decreased to 50.3 from 51.7, suggesting a slowdown in hiring that is not alarming. Initial jobless claims increased to 231,000 from 209,000, surpassing the consensus estimate of 212,000. Meanwhile, JOLTS job openings are expected to see a modest rise to approximately 7.2 million, up from 7.146 million. None of this indicates a thriving US cycle, yet it does not warrant drastic reductions either. The conclusion is straightforward: the Fed has the ability to maintain elevated rates and adopt a stern stance, thereby stabilizing the USD component of EUR/USD, even in the face of seemingly weak individual data points.
The overarching scenario for EUR/USD reflects a struggle between subdued household demand in the Eurozone and a robust US services sector that continues to show resilience. A 0.5% decline in Eurozone retail sales, along with previous indications that domestic demand is lacking, complicates the case for a persistently stronger euro given the ECB funds rate of 2.15% and inflation at 1.7%. German factory orders at +7.8% and +5.7% over the last two months indicate persistent external demand for euro-area goods; however, the currency pair is influenced by rate expectations rather than solely by exports. As DXY approaches 97.8 and with the ECB expected to maintain a cautious stance, the macroeconomic landscape suggests that EUR/USD is likely to remain constrained below 1.1900, unless Lagarde adopts a noticeably less dovish tone than anticipated by the market. Concurrently, the US position lacks sufficient strength to warrant a collapse. An ADP print of 22,000, an employment sub-index at 50.3, and jobless claims at 231,000 indicate a deceleration in the labor market. This situation inhibits an uncontrolled surge of the dollar and clarifies why EUR/USD is maintaining the 1.1775 level instead of dropping directly to 1.16. The pair is currently navigating a relative slowdown: Europe is experiencing disinflation and weak retail performance, while the US shows moderate strength in services alongside persistent prices. Currently, EUR/USD is positioned close to a significant range that extends from 1.1775 to approximately 1.1800. This area integrates the recent lows observed on February 2 and 3 alongside the 38.2% retracement of the upward movement originating from the January base. A clean break below 1.1775 would lead to the January 23 low at 1.1728, followed by the January 22 low at 1.1670. These are the levels at which dip-buyers have historically entered the market, and where a significant number of stop-loss orders are expected to be positioned now.
On the topside, immediate resistance is positioned around 1.1840, reflecting Wednesday’s high, followed by the previous support band near 1.1900 that constrained several sessions in late January. Above 1.1900, the next significant target is the psychological 1.2000 level, followed by the recent four-year high at 1.2085. The pair is currently positioned near the 50-period EMA, slightly above 1.1800 on the short-term charts, while the 200-period EMA around 1.1700 aligns with the more significant support zone. The MACD histogram appears nearly flat, indicating a neutral momentum, while the RSI is positioned close to 40, suggesting a slight bearish bias without indicating an oversold condition. The current situation aligns with a market that is experiencing a gradual decline rather than a complete breakdown. In the short term, EUR/USD is confined within a narrow range of intraday levels that traders are actively utilizing. On the downside, tactical buyers are monitoring 1.1766 and 1.1760 as micro-supports beneath the primary 1.1775 cluster, with a crucial level near 1.1672–1.1670 where the January lows are located. On the upside, 1.1810, 1.1840, and 1.1872 serve as incremental resistance levels. The observed fading spikes into the range of 1.1840–1.1870 align with the current scenario, particularly as the dollar index remains above 97.6. This is especially relevant if the ECB press conference takes a more dovish tone than anticipated by the market. The heat map of major currencies supports this perspective. The euro is slightly weaker against the dollar—approximately -0.09%—and is lagging behind the Swiss franc, although it continues to strengthen against the pound. The observed pattern aligns with expectations when EUR/USD experiences significant trading activity without plummeting: a weaker euro against safe-haven currencies and a robust dollar, balanced by relative strength against a currency grappling with its own central bank challenges.
The upcoming pivotal factor for EUR/USD hinges on the ECB’s messaging. With policy rates set at 2.15% and 2.00%, these figures are already reflected in the market. The key focus now is whether Lagarde will indicate any willingness to consider a rate cut in 2026, especially given the current inflation rate of 1.7% and the contraction in retail sales. A careful, data-focused communication that recognizes disinflation without making firm commitments would likely maintain EUR/USD around 1.18, relying on US data and the Federal Reserve for further movement. A more distinctly dovish stance, coupled with subdued European demand, would support a decline toward 1.1728 and possibly 1.1670 if DXY reclaims levels above 98.0. On the US side, as long as DXY maintains the 97.62 Fibonacci level and Fed officials such as Lisa Cook emphasize inflation risks, the dollar will retain a structural advantage. ADP at 22,000 and jobless claims at 231,000 do not present a scenario compelling enough for Powell to implement swift cuts, particularly in light of ISM services at 53.8 and prices-paid at 66.6. The current context suggests caution against pursuing euro strength on any minor rebound. Considering all factors, EUR/USD at approximately 1.179 does not present an appealing opportunity for a long-term investment. The macroeconomic and technical indicators suggest a slightly bearish outlook, indicating a more favorable risk-reward scenario for short positions. It is advisable to sell into rallies within the 1.1840–1.1900 range, aiming for a retest of 1.1728 initially, followed by 1.1670. This analysis comes as the dollar index hovers around 97.8, with the ECB adopting a more cautious stance compared to the Fed. In summary: the position is to Sell on strength, rather than maintain a neutral stance, as long as the range of 1.1900–1.2000 limits the upside and the ECB does not adopt a hawkish approach in contrast to a Fed that continues to indicate patience.