EUR/USD Price Forecast: Getting closer…
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UPGRADE- EUR/USD’s upside momentum picks up extra pace, focusing on the 1.2000 hurdle.
- The US Dollar comes under heavy pressure amid the generalised risk-on mood.
- The Federal Reserve is widely expected to keep its interest rates unchanged.
EUR/USD’s upside momentum remains well and sound, always tracking the increasing selling pressure on the US Dollar (USD), which continues to face concerns surrounding trade, the Fed’s independence and shutdown (yes, again).
EUR/USD clocks its fourth consecutive day of gains on Tuesday, flirting with the vicinity of the key 1.2000 yardstick for the first time since June 2021.
The strong move higher in spot comes once again amid further deterioration of the US Dollar’s (USD) outlook amid reignited trade concerns and geopolitical jitters, all prior to the Federal Reserve’s (Fed) interest rate decision on Wednesday.
Sentiment around US–European Union trade has clearly lifted after President Donald Trump dialled back his language last week on the threat of new tariffs linked to the Greenland dispute. Markets have taken that as a positive signal, with risk appetite improving and giving the Euro (EUR), along with other risk-sensitive currencies — a welcome boost in recent days.
In contrast, the US Dollar continues to struggle. The US Dollar Index (DXY) remains under heavy pressure, extending its sell-off toward the 96.00 area, a zone not seen since late February 2022.
The Fed: rates on hold, politics in focus
The Federal Reserve (Fed) delivered the fully priced December rate cut, but the real takeaway was the message rather than the move itself. A split vote and carefully balanced language from Chair Jerome Powell signalled that further easing is anything but guaranteed.
The Fed kicks off its two-day meeting today, with markets broadly expecting interest rates to remain unchanged when the decision is announced on Wednesday.
Still, policy may not be the main story this time around. Attention has increasingly shifted to concerns about the Fed’s independence following reports earlier this month of a Department of Justice probe involving Chair Jerome Powell.
Adding another layer of uncertainty, Trump has said a decision on a nominee for the next Fed Chair could come soon, keeping the spotlight firmly on the central bank beyond this week’s meeting.
ECB: patience, not complacency
The European Central Bank (ECB) kept rates unchanged at its December 18 meeting, striking a calmer and more patient tone that has pushed expectations for near-term rate cuts further out. Slight upgrades to growth and inflation forecasts helped reinforce that stance.
According to the ECB Accounts published last week, policymakers made it clear there’s no urgency to change course. With inflation sitting close to target, they have the breathing space to stay patient, even as ongoing risks mean they need to remain ready to adjust if conditions shift.
Members of the Governing Council (GC) stressed that patience should not be confused with complacency. Policy is seen as being in a “good place” for now, but not on autopilot. Markets appear to have taken the hint, pricing in just over 4 basis points of easing over the year ahead.
Positioning: still constructive, but less convinced
Speculative positioning continues to lean in favour of the Euro, though bullish enthusiasm is starting to cool.
Commodity Futures Trading Commission (CFTC) data for the week ending January 20 show non-commercial net long positions slipping to seven-week lows around 111.7K contracts. Furthermore, institutional players also trimmed short exposure, now sitting near 155.6K contracts.
At the same time, open interest fell to roughly 881K contracts, snapping a three-week run of gains and hinting that market participation may be thinning alongside confidence.
What to watch next
Near term: The Federal Open Market Committee (FOMC) meeting should keep the focus squarely on the USD, while flash inflation figures from Germany and early Gross Domestic Product (GDP) estimates for the euro area headline the regional calendar later in the week.
Risk: A more hawkish-than-expected Fed could quickly swing momentum back in favour of the USD. A decisive break below the 200-day Simple Moving Average (SMA) would also raise the risk of a deeper medium-term correction.
Tech corner
EUR/USD maintains a solid upside bias, navigating levels last seen in the summer of 2021, while shifting its attention to the key 1.2000 threshold.
On the other hand, there is immediate support at the 2026 bottom at 1.1576 (January 19), a region underpinned by the key 200-day SMA. A deeper pullback from here could expose a move toward the November 2025 floor at 1.1468 (November 5) ahead of the August base at 1.1391 (August 1).
In addition, momentum indicators suggest further upside might be down the road, although the current overbought conditions might put that view to the test. Indeed, the Relative Strength Index (RSI) trades near 75, while the Average Directional Index (ADX) above 26 unveils a solid trend.
Bottom line
For now, EUR/USD remains driven far more by developments in the US than by anything coming out of the euro area.
Until the Fed offers clearer guidance on how far it is prepared to ease or the eurozone shows a more convincing cyclical upswing, further gains are likely to remain gradual and measured, rather than the start of a clean breakout.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
- EUR/USD’s upside momentum picks up extra pace, focusing on the 1.2000 hurdle.
- The US Dollar comes under heavy pressure amid the generalised risk-on mood.
- The Federal Reserve is widely expected to keep its interest rates unchanged.
EUR/USD’s upside momentum remains well and sound, always tracking the increasing selling pressure on the US Dollar (USD), which continues to face concerns surrounding trade, the Fed’s independence and shutdown (yes, again).
EUR/USD clocks its fourth consecutive day of gains on Tuesday, flirting with the vicinity of the key 1.2000 yardstick for the first time since June 2021.
The strong move higher in spot comes once again amid further deterioration of the US Dollar’s (USD) outlook amid reignited trade concerns and geopolitical jitters, all prior to the Federal Reserve’s (Fed) interest rate decision on Wednesday.
Sentiment around US–European Union trade has clearly lifted after President Donald Trump dialled back his language last week on the threat of new tariffs linked to the Greenland dispute. Markets have taken that as a positive signal, with risk appetite improving and giving the Euro (EUR), along with other risk-sensitive currencies — a welcome boost in recent days.
In contrast, the US Dollar continues to struggle. The US Dollar Index (DXY) remains under heavy pressure, extending its sell-off toward the 96.00 area, a zone not seen since late February 2022.
The Fed: rates on hold, politics in focus
The Federal Reserve (Fed) delivered the fully priced December rate cut, but the real takeaway was the message rather than the move itself. A split vote and carefully balanced language from Chair Jerome Powell signalled that further easing is anything but guaranteed.
The Fed kicks off its two-day meeting today, with markets broadly expecting interest rates to remain unchanged when the decision is announced on Wednesday.
Still, policy may not be the main story this time around. Attention has increasingly shifted to concerns about the Fed’s independence following reports earlier this month of a Department of Justice probe involving Chair Jerome Powell.
Adding another layer of uncertainty, Trump has said a decision on a nominee for the next Fed Chair could come soon, keeping the spotlight firmly on the central bank beyond this week’s meeting.
ECB: patience, not complacency
The European Central Bank (ECB) kept rates unchanged at its December 18 meeting, striking a calmer and more patient tone that has pushed expectations for near-term rate cuts further out. Slight upgrades to growth and inflation forecasts helped reinforce that stance.
According to the ECB Accounts published last week, policymakers made it clear there’s no urgency to change course. With inflation sitting close to target, they have the breathing space to stay patient, even as ongoing risks mean they need to remain ready to adjust if conditions shift.
Members of the Governing Council (GC) stressed that patience should not be confused with complacency. Policy is seen as being in a “good place” for now, but not on autopilot. Markets appear to have taken the hint, pricing in just over 4 basis points of easing over the year ahead.
Positioning: still constructive, but less convinced
Speculative positioning continues to lean in favour of the Euro, though bullish enthusiasm is starting to cool.
Commodity Futures Trading Commission (CFTC) data for the week ending January 20 show non-commercial net long positions slipping to seven-week lows around 111.7K contracts. Furthermore, institutional players also trimmed short exposure, now sitting near 155.6K contracts.
At the same time, open interest fell to roughly 881K contracts, snapping a three-week run of gains and hinting that market participation may be thinning alongside confidence.
What to watch next
Near term: The Federal Open Market Committee (FOMC) meeting should keep the focus squarely on the USD, while flash inflation figures from Germany and early Gross Domestic Product (GDP) estimates for the euro area headline the regional calendar later in the week.
Risk: A more hawkish-than-expected Fed could quickly swing momentum back in favour of the USD. A decisive break below the 200-day Simple Moving Average (SMA) would also raise the risk of a deeper medium-term correction.
Tech corner
EUR/USD maintains a solid upside bias, navigating levels last seen in the summer of 2021, while shifting its attention to the key 1.2000 threshold.
On the other hand, there is immediate support at the 2026 bottom at 1.1576 (January 19), a region underpinned by the key 200-day SMA. A deeper pullback from here could expose a move toward the November 2025 floor at 1.1468 (November 5) ahead of the August base at 1.1391 (August 1).
In addition, momentum indicators suggest further upside might be down the road, although the current overbought conditions might put that view to the test. Indeed, the Relative Strength Index (RSI) trades near 75, while the Average Directional Index (ADX) above 26 unveils a solid trend.
Bottom line
For now, EUR/USD remains driven far more by developments in the US than by anything coming out of the euro area.
Until the Fed offers clearer guidance on how far it is prepared to ease or the eurozone shows a more convincing cyclical upswing, further gains are likely to remain gradual and measured, rather than the start of a clean breakout.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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