The EUR/USD pair is currently stabilized around 1.1900 following a rejection at the February high close to 1.1925 and remaining below the late-January peak of approximately 1.1975. The pair remains approximately 1.1% above last week’s lows, indicating that the rebound phase is still in effect; however, the 1.1925–1.1975 range is clearly acting as a supply zone. On the 4-hour chart, EUR/USD is exhibiting a sideways movement between the 38.2% and 50% Fibonacci retracements of the late-January selloff, with support focused around 1.1885–1.1890 and resistance located near 1.1925–1.1950. Provided that the price remains above 1.1890 and the ascending trendline from the mid-January low around 1.1600, the overall structure maintains a mildly bullish outlook. However, diminishing momentum suggests that the forthcoming movement will be influenced by US labor data and the extent of anticipated Fed cuts in 2026. The recent US macroeconomic data provides insight into the current pressure on the USD, while EUR/USD maintains a bid close to 1.1900. December Retail Sales remained unchanged at approximately $735 billion, falling short of the anticipated 0.4% increase, following a 0.6% rise in November. The Retail Sales Control Group experienced a decline of 0.1%, while the November figure has been revised downward to 0.2% from the previous 0.4%. The interplay of these factors undermines the consumption component, which constitutes nearly 70% of US GDP, leading to downward adjustments in growth forecasts for Q4 2025. The Employment Cost Index experienced a deceleration, registering a quarter-on-quarter increase of 0.7% in Q4, down from 0.8%. The annual rate reflects its weakest growth since 2021. Reduced growth in wages and benefits alleviates some of the pressure on the Federal Reserve to maintain a highly restrictive policy stance. Fed-funds futures currently reflect approximately a 75% likelihood of an initial cut occurring in June 2026, with expectations for two to three cuts by December, contrasting with the Fed’s guidance of a solitary 25-basis-point adjustment. This divergence is the primary factor leading the US Dollar Index lower toward the 96.50–96.60 range, while providing support for EUR/USD during pullbacks into the high-1.18s.
From a technical perspective, the DXY is currently positioned between 96.55 and 96.61 on the 4-hour chart, following several unsuccessful attempts to surpass the resistance zone of 97.60 to 97.80. The price continues to stay beneath a descending trendline established from the late-January peak, while the current price movement is testing the 0.236 Fibonacci support level around 96.34, which coincides with an ascending trendline originating from the 95.55 low. A decisive move below 96.30 would pave the way for a decline towards 96.02 initially, followed by the 95.55 support level. On the upside, resistance is positioned at 96.83 (0.382 Fib) and 97.22 (0.5 Fib), with the 50-period moving average located near 97.20 and the 100-period around 97.98, which continue to limit any further recovery efforts. In the case of EUR/USD, a disappointing NFP report, particularly if it falls short of approximately 40K jobs compared to the 70K consensus, would probably lead to a further decline in the DXY towards 95.55. This scenario would likely push the pair below 1.1950 and 1.1985, aiming for the next target around 1.2080. A labor report that exceeds expectations may not completely halt the dollar’s downward trajectory, but it could temper the rise in EUR/USD and potentially pull the price back into the 1.1835–1.1885 demand zone.
The postponed January Nonfarm Payrolls release stands as the key focus for the cross. The baseline forecast indicates 70K new jobs following 50K in December, with the unemployment rate remaining stable at 4.4% and average hourly earnings declining to 3.6% year-on-year from 3.8%. The White House’s official commentary indicates that job creation is expected to stay subdued, referencing migration constraints and productivity gains, which skews expectations toward the lower end of forecasts. If payrolls come in significantly below 70K, particularly under 40K, markets will likely solidify the existing expectations of two to three cuts in 2026 and may start to consider a more accelerated easing trajectory. This scenario would likely lead to a depreciation of the USD, creating a favorable environment for EUR/USD. It suggests a potential breakthrough at 1.1950 and 1.1985, with a trajectory aiming towards the 1.2080 area. If the report exceeds expectations, approaching 100K–120K with wages remaining around or above 3.6%, the USD could rebound toward 96.80–97.20 on the DXY. This scenario would cap the upside potential in the pair and elevate the likelihood of revisiting 1.1890, followed by 1.1835–1.1815.
In Europe, the critical factor is the extent of EUR/USD appreciation that the European Central Bank can accept before indicating any unease. Previous comments highlighted 1.20 on the cross as a critical level, and survey results indicate that approximately 34% of market participants view the 1.25 region as the point where the ECB may contemplate a further rate cut, while another 23% identify 1.30 as a significant threshold. Approximately 20% of participants anticipate that the ECB will disregard the exchange rate at nearly any level; however, in reality, the 1.20–1.25 range is evidently under observation. When EUR/USD briefly traded above 1.20 last week, the pair was approximately 3% stronger than the ECB’s December 2025 assumption, while oil prices were around 5% above that same baseline. The robust EUR introduces disinflationary pressure; however, the elevated oil prices somewhat counterbalance this impact by increasing the costs of imported energy. The ECB’s response has been cautious, as both shocks would require sustained impact to significantly change long-term inflation. Current projections continue to indicate EUR/USD hovering around 1.20 by year-end, rather than presuming a constrained ceiling significantly beneath that range. For the cross, this indicates that an upward movement toward 1.20 does not pose a policy issue, whereas sustained advances toward 1.25 would begin to engage the ECB’s response mechanism.