EUR/USD Price Forecast: Next on the downside comes the 200-day SMA
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UPGRADE- EUR/USD resumes its downtrend, slipping back to the 1.1630 region on Tuesday.
- The US Dollar gathered fresh steam despite shrinking US yields across the curve.
- US inflation data saw consumer prices still well above the Fed’s target.
EUR/USD remains under pressure, keeping its correction from December highs past the 1.1800 barrier unchanged, always on the back of the intense recovery in the US Dollar (USD). So far, the pair’s upside remains capped by the 1.1700 level.
EUR/USD could not sustain Monday’s auspicious session, facing the resumption of the selling interest and receding toward the 1.1630 zone on turnaround Tuesday. Meanwhile, the 1.1700 yardstick appears a tough nut to crack for bulls, while the inability of pick up serious upside traction could open the door to a potential test of the critical 200-day SMA around 1.1570.
The pair’s daily decline owes a lot more to the USD side of the equation than anything Euro-specific. Fresh buying pressure in the Greenback has resurfaced after
US inflation data in December seems to have paved the way for further rate cuts by the Federal Reserve (Fed).
In the meantime, market participants appear to have set aside jitters surrounding the Fed’s independence, at least for now. That said, the US Dollar Index (DXY) looks reinvigorated, picking up fresh pace and recaliming the area above the 99.00 mark in a context where US Treasurty yields head south across the board.
The Fed cuts, but keeps its foot near the brake
The Federal Reserve (Fed) delivered the December rate cut markets had been pencilling in, but it was the messaging, rather than the move itself—that did most of the talking.
A split vote and a carefully balanced tone from Chair Jerome Powell made it clear the Fed isn’t in any hurry to speed up the easing cycle. Policymakers want firmer evidence that the labour market is cooling in an orderly fashion and that inflation, which Powell again described as “still somewhat elevated”, is genuinely heading back toward target.
Updated projections didn’t really move the needle. The median forecast still shows just one additional 25-basis-point cut pencilled in for 2026, unchanged from September. Inflation is expected to ease toward 2.4% by the end of next year, growth is seen holding around 2.3%, and unemployment is projected to settle near 4.4%.
Powell struck a familiar, cautious tone in his press conference. He stressed that the Fed is well positioned to react to incoming data but offered no hint that another cut is around the corner. At the same time, he was clear that rate hikes are not part of the baseline outlook.
On inflation, Powell pointed directly to import tariffs introduced under former President Donald Trump as one factor keeping price pressures above the Fed’s 2% target, underscoring that part of the inflation overshoot is policy-driven rather than demand-led.
Importantly, the December cut itself was far from a foregone conclusion. Minutes released on December 30 revealed deep divisions within the Federal Open Market Committee (FOMC), with several officials saying the decision was finely balanced and that holding rates steady was a very real alternative.
The split was telling. Some policymakers wanted to move pre-emptively as the labour market cools, while others worried inflation progress had stalled and that easing too soon could damage credibility. That tension showed up clearly in the vote, with dissent coming from both hawkish and dovish camps, an unusual outcome, and the second meeting in a row where that’s happened.
While the Fed has now delivered three consecutive quarter-point cuts, confidence around further easing is fading. Projections point to just one cut next year, and the policy statement hints at a likely pause unless inflation resumes its decline or unemployment rises more sharply than expected.
Adding to the uncertainty is a patchy data backdrop following the prolonged government shutdown, leaving policymakers with an incomplete picture. Several officials made it clear they’d prefer a fuller run of labour-market and inflation data before backing any further moves.
The ECB is relaxed, and in no rush
Across the Atlantic, the European Central Bank (ECB) also opted to stand pat at its December 18 meeting, and sounded noticeably more comfortable doing so.
Policymakers nudged parts of their growth and inflation outlook slightly higher, a combination that all but closes the door on near-term rate cuts. Recent data have helped steady nerves: euro-area growth has surprised modestly to the upside, exporters have handled US tariffs better than feared, and domestic demand has helped cushion ongoing weakness in manufacturing.
Inflation dynamics remain broadly supportive of the ECB’s stance. Price pressures are hovering close to the 2% target, with services inflation doing most of the heavy lifting, a pattern officials expect to persist for some time.
In its updated projections, inflation is still seen dipping below 2% in 2026 and 2027, largely due to lower energy prices, before drifting back toward target in 2028. At the same time, the ECB flagged the risk that services inflation could prove stickier than hoped, with wage growth slowing the pace of any decline.
Growth forecasts were revised slightly higher, reflecting an economy that appears more resilient than feared despite higher US tariffs and competition from cheaper Chinese imports. As President Christine Lagarde put it, exports remain “sustainable” for now.
The ECB now sees the economy growing 1.4% this year, 1.2% in 2026, and 1.4% in both 2027 and 2028.
Lagarde was careful not to box the Bank into any preset policy path, once again stressing that decisions will be taken meeting by meeting and guided by incoming data.
That cautious confidence was echoed in the ECB’s November consumer survey, which showed inflation expectations unchanged across one-, three- and five-year horizons, levels broadly consistent with inflation settling around the ECB’s 2% medium-term target and supportive of rates staying at 2.00% for now.
Market pricing reflects that comfort, with implied rates pointing to barely 4 basis points of easing this year.
Politics weighs on the Dollar
The US Dollar’s pullback on Monday followed reports that the Justice Department could seek to indict Powell over comments he made to Congress about cost overruns on a renovation project at the Fed.
Powell described the move as a pretext to gain leverage over interest-rate decisions, something Trump has openly pushed for, and the episode has reignited concerns about the Fed’s independence, weighing on confidence in the Greenback.
Adding another layer of uncertainty, President Trump said on Tuesday that candidates to succeed Powell could be announced in the coming weeks.
Positioning continues to favour the euro
Speculative positioning still leans in favour of the euro (EUR), and momentum appears to be rebuilding.
According to Commodity Futures Trading Commission (CFTC) data for the week ending January 6, non-commercial net longs rose to nearly 163K contracts, a two-week high and levels last seen in the summer of 2023. At the same time, institutional players increased short exposure to just under 216K contracts.
Total open interest also climbed to a three-week high near 882K contracts, pointing to rising participation and slightly firmer conviction on the bullish side.
What traders are watching now
Near term: Attention turns to Wednesday’s US Retail Sales and Producer Prices, which should keep the spotlight on consumer demand and expectations around the Fed’s rate path. Markets are also watching the Supreme Court of the United States, which could rule as soon as Wednesday on the legality of Trump’s tariff policies.
Risk: A renewed rise in US yields or a more hawkish repricing of the Fed outlook could draw fresh sellers into EUR/USD. On the downside, a clean break below the key 200-day Simple Moving Average (SMA) would open the door to a deeper medium-term correction.
Tech corner
If EUR/USD breaches below the 2025 bottom at 1.1618 (January 9), it could pave the way for a potential drift toward the 200-day SMA at 1.1572 ahead of the November base at 1.1468 (November 5) and the August valley at 1.1391 (August 1).
In contrast, there is an immediate resistance at the December 2025 high at 1.1807 (December 24). Once this level is cleared, spot could embark on a trip toward the 2025 ceiling at 1.1918 (September 17), before challenging the 1.2000 yardstick.
Momentum indicators remain tilted southwards: The Relative Strength Index (RSI) retreats to the 42 area, adding to the idea of extra pullbacks, while the Average Directional Index (ADX) near 20 still indicates a solid trend.
Bottom line
For now, EUR/USD is being driven far more by developments in the US than by anything happening in the euro area.
Until the Fed offers clearer guidance on how far it’s willing to ease, or the euro bloc delivers a more convincing cyclical upswing, any recovery in the pair is likely to be steady rather than spectacular.
In short, the Euro benefits when the Greenback softens, but it’s still waiting for a stronger story of its own.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- EUR/USD resumes its downtrend, slipping back to the 1.1630 region on Tuesday.
- The US Dollar gathered fresh steam despite shrinking US yields across the curve.
- US inflation data saw consumer prices still well above the Fed’s target.
EUR/USD remains under pressure, keeping its correction from December highs past the 1.1800 barrier unchanged, always on the back of the intense recovery in the US Dollar (USD). So far, the pair’s upside remains capped by the 1.1700 level.
EUR/USD could not sustain Monday’s auspicious session, facing the resumption of the selling interest and receding toward the 1.1630 zone on turnaround Tuesday. Meanwhile, the 1.1700 yardstick appears a tough nut to crack for bulls, while the inability of pick up serious upside traction could open the door to a potential test of the critical 200-day SMA around 1.1570.
The pair’s daily decline owes a lot more to the USD side of the equation than anything Euro-specific. Fresh buying pressure in the Greenback has resurfaced after
US inflation data in December seems to have paved the way for further rate cuts by the Federal Reserve (Fed).
In the meantime, market participants appear to have set aside jitters surrounding the Fed’s independence, at least for now. That said, the US Dollar Index (DXY) looks reinvigorated, picking up fresh pace and recaliming the area above the 99.00 mark in a context where US Treasurty yields head south across the board.
The Fed cuts, but keeps its foot near the brake
The Federal Reserve (Fed) delivered the December rate cut markets had been pencilling in, but it was the messaging, rather than the move itself—that did most of the talking.
A split vote and a carefully balanced tone from Chair Jerome Powell made it clear the Fed isn’t in any hurry to speed up the easing cycle. Policymakers want firmer evidence that the labour market is cooling in an orderly fashion and that inflation, which Powell again described as “still somewhat elevated”, is genuinely heading back toward target.
Updated projections didn’t really move the needle. The median forecast still shows just one additional 25-basis-point cut pencilled in for 2026, unchanged from September. Inflation is expected to ease toward 2.4% by the end of next year, growth is seen holding around 2.3%, and unemployment is projected to settle near 4.4%.
Powell struck a familiar, cautious tone in his press conference. He stressed that the Fed is well positioned to react to incoming data but offered no hint that another cut is around the corner. At the same time, he was clear that rate hikes are not part of the baseline outlook.
On inflation, Powell pointed directly to import tariffs introduced under former President Donald Trump as one factor keeping price pressures above the Fed’s 2% target, underscoring that part of the inflation overshoot is policy-driven rather than demand-led.
Importantly, the December cut itself was far from a foregone conclusion. Minutes released on December 30 revealed deep divisions within the Federal Open Market Committee (FOMC), with several officials saying the decision was finely balanced and that holding rates steady was a very real alternative.
The split was telling. Some policymakers wanted to move pre-emptively as the labour market cools, while others worried inflation progress had stalled and that easing too soon could damage credibility. That tension showed up clearly in the vote, with dissent coming from both hawkish and dovish camps, an unusual outcome, and the second meeting in a row where that’s happened.
While the Fed has now delivered three consecutive quarter-point cuts, confidence around further easing is fading. Projections point to just one cut next year, and the policy statement hints at a likely pause unless inflation resumes its decline or unemployment rises more sharply than expected.
Adding to the uncertainty is a patchy data backdrop following the prolonged government shutdown, leaving policymakers with an incomplete picture. Several officials made it clear they’d prefer a fuller run of labour-market and inflation data before backing any further moves.
The ECB is relaxed, and in no rush
Across the Atlantic, the European Central Bank (ECB) also opted to stand pat at its December 18 meeting, and sounded noticeably more comfortable doing so.
Policymakers nudged parts of their growth and inflation outlook slightly higher, a combination that all but closes the door on near-term rate cuts. Recent data have helped steady nerves: euro-area growth has surprised modestly to the upside, exporters have handled US tariffs better than feared, and domestic demand has helped cushion ongoing weakness in manufacturing.
Inflation dynamics remain broadly supportive of the ECB’s stance. Price pressures are hovering close to the 2% target, with services inflation doing most of the heavy lifting, a pattern officials expect to persist for some time.
In its updated projections, inflation is still seen dipping below 2% in 2026 and 2027, largely due to lower energy prices, before drifting back toward target in 2028. At the same time, the ECB flagged the risk that services inflation could prove stickier than hoped, with wage growth slowing the pace of any decline.
Growth forecasts were revised slightly higher, reflecting an economy that appears more resilient than feared despite higher US tariffs and competition from cheaper Chinese imports. As President Christine Lagarde put it, exports remain “sustainable” for now.
The ECB now sees the economy growing 1.4% this year, 1.2% in 2026, and 1.4% in both 2027 and 2028.
Lagarde was careful not to box the Bank into any preset policy path, once again stressing that decisions will be taken meeting by meeting and guided by incoming data.
That cautious confidence was echoed in the ECB’s November consumer survey, which showed inflation expectations unchanged across one-, three- and five-year horizons, levels broadly consistent with inflation settling around the ECB’s 2% medium-term target and supportive of rates staying at 2.00% for now.
Market pricing reflects that comfort, with implied rates pointing to barely 4 basis points of easing this year.
Politics weighs on the Dollar
The US Dollar’s pullback on Monday followed reports that the Justice Department could seek to indict Powell over comments he made to Congress about cost overruns on a renovation project at the Fed.
Powell described the move as a pretext to gain leverage over interest-rate decisions, something Trump has openly pushed for, and the episode has reignited concerns about the Fed’s independence, weighing on confidence in the Greenback.
Adding another layer of uncertainty, President Trump said on Tuesday that candidates to succeed Powell could be announced in the coming weeks.
Positioning continues to favour the euro
Speculative positioning still leans in favour of the euro (EUR), and momentum appears to be rebuilding.
According to Commodity Futures Trading Commission (CFTC) data for the week ending January 6, non-commercial net longs rose to nearly 163K contracts, a two-week high and levels last seen in the summer of 2023. At the same time, institutional players increased short exposure to just under 216K contracts.
Total open interest also climbed to a three-week high near 882K contracts, pointing to rising participation and slightly firmer conviction on the bullish side.
What traders are watching now
Near term: Attention turns to Wednesday’s US Retail Sales and Producer Prices, which should keep the spotlight on consumer demand and expectations around the Fed’s rate path. Markets are also watching the Supreme Court of the United States, which could rule as soon as Wednesday on the legality of Trump’s tariff policies.
Risk: A renewed rise in US yields or a more hawkish repricing of the Fed outlook could draw fresh sellers into EUR/USD. On the downside, a clean break below the key 200-day Simple Moving Average (SMA) would open the door to a deeper medium-term correction.
Tech corner
If EUR/USD breaches below the 2025 bottom at 1.1618 (January 9), it could pave the way for a potential drift toward the 200-day SMA at 1.1572 ahead of the November base at 1.1468 (November 5) and the August valley at 1.1391 (August 1).
In contrast, there is an immediate resistance at the December 2025 high at 1.1807 (December 24). Once this level is cleared, spot could embark on a trip toward the 2025 ceiling at 1.1918 (September 17), before challenging the 1.2000 yardstick.
Momentum indicators remain tilted southwards: The Relative Strength Index (RSI) retreats to the 42 area, adding to the idea of extra pullbacks, while the Average Directional Index (ADX) near 20 still indicates a solid trend.
Bottom line
For now, EUR/USD is being driven far more by developments in the US than by anything happening in the euro area.
Until the Fed offers clearer guidance on how far it’s willing to ease, or the euro bloc delivers a more convincing cyclical upswing, any recovery in the pair is likely to be steady rather than spectacular.
In short, the Euro benefits when the Greenback softens, but it’s still waiting for a stronger story of its own.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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