The EUR/USD pair is currently positioned between 1.1770 and 1.1790, resting on a significant support area that has characterized the most recent phase of the movement. The pair has retraced from a recent peak around 1.2050; however, the medium-term framework stemming from the 1.1578 low continues to exhibit higher highs and higher lows, indicating a temporary halt in an uptrend rather than a definitive peak. The spot is currently positioned near the 20-day EMA at 1.1792, which is exhibiting a slight upward slope. The average, in conjunction with the 1.1780–1.1820 range, serves as the operational pivot: sustaining this area preserves the bullish outlook, while a breach would initiate a more significant corrective phase. The focal point in this phase is the US Dollar, rather than the euro. The US Dollar Index is currently positioned between 97.78 and 97.85, struggling to surpass the 98.00 mark following its recent rebound. The decision is influenced by evident weakening in US employment statistics. Initial jobless claims increased to 231,000 for the week ending January 31, compared to the expected 212,000 and the prior week’s figure of 209,000. In January, ADP private payrolls saw an increase of just 22,000 jobs, significantly underperforming the 48,000 that economists had anticipated and a decline from the 37,000 reported in December. This combination challenges the perception of a strong labor market and necessitates a reassessment of the Federal Reserve’s trajectory towards a more accommodating approach.
Expectations regarding rates have adjusted in response. The likelihood of a 25 basis points reduction in March has increased to approximately 22.7%, up from 9.4% earlier this week, with market sentiment now favoring June as the probable initiation of the easing cycle. Despite this, the Fed maintains a hawkish stance; Lisa Cook has indicated that she will not support additional rate cuts without more definitive and consistent signs of disinflation, and she continues to prioritize concerns over the sluggish pace of inflation over a solitary weak jobs report. That is why DXY is experiencing pressure but not facing a collapse. For EUR/USD, this combination creates a favorable environment for buying on dips around 1.1770, although upward breakouts require a more robust macroeconomic driver. The ECB maintained its policy stance, emphasizing that inflation is projected to stabilize around 2% in the medium term, while also drawing attention to a “uncertain geopolitical environment.” The combination indicates a central bank prepared to maintain its position: there is no inclination to tighten further amid sluggish growth, and concurrently, no urgency to reduce rates prior to the Fed’s actions. The single currency continues to face “broadly under pressure” in relative terms due to fragile euro-area growth and weak data surprises; however, this does not necessarily warrant a breach of EUR/USD beneath structural supports. Given the ECB’s stance and the Fed’s gradual shift towards cuts influenced by weak labor data, the narrative surrounding rate differentials does not support a significant decline of the euro at this time. Provided that the ECB does not preemptively ease before the Fed, EUR/USD has the potential to maintain its position in the upper half of its recent range, with 1.17–1.18 serving as a significant demand zone.
From a technical perspective, EUR/USD is currently experiencing a classic phase of consolidation following a robust impulsive rally. The transition from 1.1578 to 1.2079 established a distinct upward movement. The recent pullback has retraced to the 61.8% Fibonacci retracement level near 1.1770, aligning with a convergence of additional support levels. The 1.1768–1.1770 area currently serves as the pivotal point of the overall structure. The pair is currently positioned slightly above the 200-period EMA on the 4-hour chart around 1.1770, serving as a dynamic trend support level. The alignment of Fib confluence alongside the long-term intraday average represents a critical zone where buyers generally protect their positions, assuming the trend remains intact. The 14-day RSI at approximately 51 indicates that momentum has moderated from earlier heightened levels, yet it has not transitioned into a bearish phase. The absence of a strong bearish divergence and a clear breakdown through key averages supports the perspective that we are currently in a sideways digestion phase, rather than entering a downtrend. The initial hurdle that must be overcome is the 50% retracement level at 1.1826. A daily close above 1.1826 would reestablish the trajectory toward the 1.1900 psychological level and subsequently into the 1.1980–1.2050 resistance band. A decisive break below 1.1768–1.1770 would expose 1.1730 as the next obvious target, with deeper risk toward the 78.6% retracement at 1.1684. Even a decline to 1.1684 is still considered a correction within the larger upward trend, provided that the 1.1578 support level holds firm.
The immediate trajectory is influenced by the University of Michigan Consumer Sentiment Index and the one-year inflation expectations. The consensus indicates a decline in sentiment from 56.4 to 55.0, reflecting a decrease in confidence, whereas the previous one-year inflation expectations were at 4%. A print that confirms a cooling sentiment, while not indicating a significant collapse in inflation expectations, conveys a clear message: demand momentum is decelerating, the economy is experiencing a loss of vigor, yet the inflation issue remains unresolved. In that setup, the market often increases speculation regarding potential Fed cuts later in the year, particularly as the labor market shows signs of concern with 231,000 jobless claims and 6.542 million JOLTS job openings, compared to the 7.2 million expected and 6.928 million previously reported. The interplay of these factors generally leads to a depreciation of the dollar and an appreciation of EUR/USD, as it encourages investors to anticipate a scenario where US yields may need to decrease, while the ECB is able to sustain a more gradual approach to easing. Under that configuration, EUR/USD has potential to move higher from 1.1770 toward 1.1826 and 1.1900. The contrary situation is clear-cut. If sentiment exceeds expectations significantly and inflation expectations drop sharply below the previous 4% level, the focus turns to a US consumer that continues to show resilience as price pressures diminish. In that scenario, the Fed can convincingly hold off on early cuts, allowing the DXY to more firmly maintain the 97.60–98.30 range, while EUR/USD faces the potential of declining from 1.1770 towards 1.1730 and 1.1684. The DXY configuration indicates that the dollar lacks complete dominance. The index has rebounded from a late-January low close to 95.60 to approximately 97.85, moving within a rising short-term channel and remaining above the 50-period EMA near 97.60 on the 2-hour chart.
The profile indicates a tactical recovery, yet it lacks a dominant trend: DXY remains beneath the 200-EMA, with resistance situated between 98.25 and 98.90, corresponding to previous breakdown levels and significant Fibonacci retracements. A sustained break above 98.30–98.90 is necessary to transition the structure into a stronger dollar uptrend, with potential reaching 99.50. Cross-pairs exhibit a consistent trend in alignment with the EUR/USD scenario. GBP/USD is currently positioned around 1.3560 following a retreat from approximately 1.3850. However, the price remains above a rising trendline and the 200-EMA, which is situated near 1.3520. Selling pressure has paused around the 61.8% retracement level near 1.3580, while the RSI in the low-40s suggests a deceleration in downside momentum rather than a forceful reversal. This pattern indicates that major FX pairs are maintaining higher support levels while the dollar faces challenges in overcoming resistance. This is reflected in EUR/USD’s ability to hold the 1.1780–1.1820 range instead of experiencing a significant breakdown.