The EUR/USD has reached a critical juncture, aligning precisely with expectations. Following a decline from the 1.2050 high, the pair encountered significant buying interest near the 1.1800 mark, which is now serving as a pivotal point rather than merely an intraday level. Monday’s movement downward examined the lower range and momentarily challenged the 1.1737–1.1700 area, yet sellers were unable to achieve a definitive breach. The current trading range for spot is approximately between 1.1810 and 1.1815, with 1.1800 serving as a support level. The recovery is supported by strategic positioning, rather than chance. The decline to 1.1800 occurred alongside significantly extended intraday momentum indicators and a heavily saturated short position in euros. After the market reached the downside target near that level, the candles displayed long lower wicks, indicating that both institutional and retail investors were absorbing offers around 1.1780–1.1800 instead of pushing for another decline. As long as EUR/USD maintains its stance above 1.1800, bearish sentiment remains cautious, despite their overarching influence stemming from the peak at 1.2050. The EUR/USD recovery is taking place as the US Dollar has diminished some of its previous strength. The US Dollar Index has pulled back to the 97.4–97.5 range after not being able to maintain the surge to 99.8, even with robust US economic data supporting it. The ISM Manufacturing PMI increased to 52.6 in January, up from 47.9 in December, surpassing the consensus estimate of 48.5.
Additionally, the 10-year US yield rose by nearly 1% in the prior session. Typically, that combination supports a strong demand for the USD. This period, regulatory measures and political dynamics are constraining the movement. The selection of Kevin Warsh for the position of Fed chair is interpreted as a move towards a more prudent, data-oriented Federal Reserve, contrasting with an approach that is solely aggressive. The Federal Reserve’s commentary positioning the 3.50%–3.75% policy band as approximately neutral suggests a reduced likelihood of a significant new tightening phase. The interplay is elevating the USD, allowing EUR/USD to maintain its position above 1.1800, even in light of stronger US macroeconomic data. Short-term flows indicate a tendency for EUR/USD stabilization, as the demand for the USD as a safe haven is diminishing. A recent agreement in the US Senate to advance a government funding package mitigates the risk of a shutdown and alleviates a short-term political uncertainty that had bolstered the dollar. Furthermore, a trade agreement between the US and India that reduces tariffs on both sides and involves India reducing its reliance on Russian oil is perceived as a slight positive for global trade and risk assets. The recent developments promote a shift towards equities and higher-beta investments, while leading to a reduction in defensive dollar positions. For EUR/USD, this indicates that declines into the 1.1780–1.1800 range are currently attracting significant buying interest from investors shifting their allocations away from the USD, despite the ongoing structural growth and interest rate advantages favoring the US.
From a technical perspective, EUR/USD is positioned right at a crucial decision point. On the 2-hour chart, the price continues to stay above a rising trendline that has supported the entire recovery from previous lows, and is trading above the 200-EMA near 1.1780, which serves as the initial significant medium-term dynamic support. As long as the spot remains above the 1.1780 level, the short-term structure continues to appear positive. On the daily chart, the pair remains positioned above its 50-day EMA near 1.1737, sustaining the movement from 1.1578 as part of a larger upward trend rather than indicating a finished pattern. Currently, EUR/USD is positioned slightly below the 9-day EMA at 1.1836, representing the initial resistance that buyers need to surpass in order to transition this from a mere bounce to a legitimate recovery phase. The momentum has transitioned from a negative stance to a neutral position. The 14-day RSI has risen to approximately 53 after previously falling below the midline, indicating a reduction in downside momentum, while the market remains distant from being overbought. The current structure indicates a standard corrective pullback: EUR/USD has declined from 1.2050 to 1.1800 and is now trying to regain momentum to test higher levels such as 1.1895–1.2000, although it remains susceptible if support does not hold. Resistance is positioned at 1.1836 (9-day EMA), followed by the 1.1895–1.1900 range, and subsequently at 1.2000. Additional resistance levels include 1.2082, with the upper channel limit potentially reaching near 1.2290 if momentum shifts significantly. Should the price break below 1.1780, it would lead to a test of the 1.1737 50-day EMA, followed by 1.1700. If the bearish sentiment strengthens, the deeper target would be 1.1578.
In the immediate future, EUR/USD is confined within a narrow yet significant range. The pair is currently trading within the range of 1.1810–1.1815, constrained by the support band of 1.1780–1.1800 below and the 9-day EMA positioned at 1.1836 above. Recent candles exhibit small bodies accompanied by significant lower shadows near support levels, indicating that selling pressure is being absorbed and that buyers are subtly accumulating positions during periods of weakness. Should the spot manage to close firmly above 1.1836, the likelihood of a movement towards the 1.1895–1.1900 area increases, with the subsequent resistance level anticipated at 1.1950–1.2000. A sustained break of 1.2000 would subsequently bring the 1.2050–1.2082 zone into consideration and re-establish the pathway toward 1.2290. Should the EUR/USD fall below 1.1780, attention will swiftly shift to the 1.1737 50-day EMA. A daily close beneath that level would validate that the rebound from 1.1800 was merely a corrective pause in a larger downtrend from 1.2050, increasing the likelihood of a decline towards 1.1700, followed by the 1.1578 low should the dollar regain strength. Despite the recent rebound, EUR/USD encounters a fundamental challenge stemming from differing policies. The current US environment features a PMI of 52.6, rising Treasury yields, and a Federal Reserve indicating a stance of neutrality instead of an immediate shift towards easing measures. The EUR side currently lacks a definitive counterbalance, as it does not present superior growth, elevated yields, or a robust tightening trajectory. The 1.1950–1.2000 range serves as a logical profit-taking zone during upward movements. The DXY profile supports this upper limit. The index has decreased to 97.4–97.5, yet the previous surge to 99.8 illustrates the rapid repricing potential of the USD should the market shift its focus back to additional hikes or extend rate-cut anticipations. An upward movement in DXY from the 97.2–96.8 support area would likely limit EUR/USD around the 1.1895–1.2000 range and push traders back toward the 1.1737–1.1700 support zone.
By integrating macroeconomic indicators and technical analysis, the outlook for EUR/USD is decidedly negative, favoring the strategy of selling on strength rather than pursuing upward movements. The pair is maintaining its position at 1.1800, yet this defense occurs within a corrective wave that initiated at 1.2050, amidst a backdrop of supportive USD yields and data. Provided that EUR/USD stays below the 1.1895–1.1950 resistance range, any upward movements into that area should be utilized for increasing short positions rather than for initiating breakout trades. A strategic approach involves capitalizing on strength within the range of 1.1880 to 1.1950, while managing risk above the swing high of 1.2050. Anticipated downside targets include 1.1780, 1.1737, and 1.1700, with a potential extension towards 1.1578 should the dollar regain momentum. A sustained break and hold above 1.1950–1.2000 is necessary to shift the bias and confirm a renewed uptrend for EUR/USD, targeting 1.2082–1.2290. Until the market indicates a change, the pair should be approached as a sell-on-rally scenario within a still-unstable corrective setting.