EUR/USD Price Forecast: Positive bias unchanged above 1.1570
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UPGRADE- EUR/USD partially reverses the recent steep pullback, targeting the 1.1700 barrier.
- The US Dollar remains offered against the backdrop of reignited Fed jitters.
- Market participants will now closely follow the release of US CPI data on Tuesday.
EUR/USD seems to have found its footing for now in the low 1.1600s. A softer US Dollar (USD) has helped take the edge off last week’s sharp pullback, giving the pair some breathing room ahead of Tuesday’s all-important US inflation data.
EUR/USD kicks off the week on a steadier note, snapping a four-day losing streak and edging to within a whisker of the 1.1700 mark. It’s an encouraging start, with spot also probing multi-day highs in the process.
The bounce owes a lot more to the USD side of the equation than anything Euro-specific. Fresh selling pressure in the US Dollar (USD) has resurfaced after renewed threats to the independence of the Federal Reserve (Fed). As a result, the US Dollar Index (DXY) has slipped away from recent four-week highs and is now testing its 200-day moving average near 98.80, against a backdrop of mixed US Treasury yields across the curve and softer German 10-year bund yields.
The Fed stays patient and laser-focused on jobs
The Fed delivered the December rate cut markets had been expecting, but it was the tone, not the move, that caught investors’ attention.
A split vote and a carefully calibrated message from Chair Jerome Powell made it clear policymakers are in no rush to accelerate the easing cycle. Officials want clearer evidence that the labour market is cooling in an orderly way and that inflation, which Powell described as “still somewhat elevated”, is genuinely heading back toward the target.
Updated projections didn’t change the story much. The median forecast still points to just one additional 25-basis-point cut pencilled in for 2026, unchanged from September. Inflation is expected to drift toward 2.4% by the end of next year, while growth is seen holding up around 2.3%, with unemployment settling near 4.4%.
Powell struck a familiar tone in his press conference, stressing that the Fed is well positioned to respond to incoming data but offering no hint that another cut is imminent. At the same time, he firmly ruled out rate hikes, making it clear they’re not part of the baseline outlook.
On inflation, Powell pointed directly to import tariffs introduced under Donald Trump as one factor keeping price pressures above the Fed’s 2% target, reinforcing the idea that part of the inflation overshoot is policy-driven rather than demand-led.
Crucially, the December cut itself was far from a done deal. Minutes released on December 30 showed deep divisions within the Committee, with several officials saying the decision was finely balanced and that holding rates steady was a very real option.
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 hurt credibility. That tension showed up clearly in the vote, with dissent coming from both hawkish and dovish camps, an unusual outcome, and now the second meeting in a row where that’s happened.
While the Fed has 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 falling or unemployment rises more sharply than expected.
Complicating matters further is the patchy data backdrop following the prolonged government shutdown, leaving policymakers somewhat in the dark. Several officials made it clear they’d prefer a fuller run of labour-market and inflation data before backing any further cuts.
The ECB is comfortable sitting on its hands
Across the Atlantic, the ECB also chose to stand pat at its December 18 meeting and sounded noticeably more at ease doing so.
Policymakers nudged parts of their growth and inflation outlook slightly higher, a combination that all but shuts the door on near-term rate cuts. Recent data have helped calm 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 much of the heavy lifting, a pattern officials expect to persist for a while.
In its updated projections, inflation is still seen dipping below 2% in 2026 and 2027, largely thanks 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 lock the Bank into any preset policy path, stressing once again 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 bank’s 2% medium-term target and supportive of rates staying at 2.00% for now.
On the latter, market pricing reflects that comfort, with implied rates pointing to barely 3 basis points of easing this year.
Politics drags on the buck, again
The US Dollar comes under renewed pressure on Monday after the Justice Department threatened 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.
Positioning still backs the Euro
Speculative positioning continues to lean in favour of the Euro (EUR), and enthusiasm appears to be rebuilding.
According to Commodity Futures Trading Commission (CFTC) data for the week ending January 6, non-commercial net longs climbed 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.
Additionally, total open interest rose to a three-week high near 882K contracts, pointing to rising participation and slightly stronger conviction on the bullish side.
What markets are focused on now
Near term: Tuesday’s US CPI release is the immediate focal point. A strong inflation print would likely reignite dollar strength and keep EUR/USD under pressure as expectations for further Fed cuts fade. 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 path could invite fresh sellers. On the upside, a clean break and hold above 1.1800 would materially improve momentum.
Tech corner
The continuation of the move southwards faces immediate support at the so far 2025 bottom at 1.1618 (January 9). Once this area is cleared, spot could challenge its critical 200-day SMA at 1.1568 prior to the November floor at 1.1468 (November 5), and the August base at 1.1391 (August 1).
On the other hand, bulls face their next obstacle at the December 2025 top at 1.1807 (December 24). Up from here comes the 2025 ceiling at 1.1918 (September 17), all ahead of the 1.2000 threshold.
Momentum indicators keep pointing south in the near term: The Relative Strength Index (RSI) bounces to the 45 zone, alleviating the idea of further losses, while the Average Directional Index (ADX) near 22 suggest a still strong trend.
Bottom line
For now, EUR/USD is being driven far more by developments in the US than by anything happening in Euroland.
Until the Fed offers clearer guidance on how far it’s prepared 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 single currency benefits when the Greenback softens, but it’s still waiting for a stronger story of its own.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the 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.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- EUR/USD partially reverses the recent steep pullback, targeting the 1.1700 barrier.
- The US Dollar remains offered against the backdrop of reignited Fed jitters.
- Market participants will now closely follow the release of US CPI data on Tuesday.
EUR/USD seems to have found its footing for now in the low 1.1600s. A softer US Dollar (USD) has helped take the edge off last week’s sharp pullback, giving the pair some breathing room ahead of Tuesday’s all-important US inflation data.
EUR/USD kicks off the week on a steadier note, snapping a four-day losing streak and edging to within a whisker of the 1.1700 mark. It’s an encouraging start, with spot also probing multi-day highs in the process.
The bounce owes a lot more to the USD side of the equation than anything Euro-specific. Fresh selling pressure in the US Dollar (USD) has resurfaced after renewed threats to the independence of the Federal Reserve (Fed). As a result, the US Dollar Index (DXY) has slipped away from recent four-week highs and is now testing its 200-day moving average near 98.80, against a backdrop of mixed US Treasury yields across the curve and softer German 10-year bund yields.
The Fed stays patient and laser-focused on jobs
The Fed delivered the December rate cut markets had been expecting, but it was the tone, not the move, that caught investors’ attention.
A split vote and a carefully calibrated message from Chair Jerome Powell made it clear policymakers are in no rush to accelerate the easing cycle. Officials want clearer evidence that the labour market is cooling in an orderly way and that inflation, which Powell described as “still somewhat elevated”, is genuinely heading back toward the target.
Updated projections didn’t change the story much. The median forecast still points to just one additional 25-basis-point cut pencilled in for 2026, unchanged from September. Inflation is expected to drift toward 2.4% by the end of next year, while growth is seen holding up around 2.3%, with unemployment settling near 4.4%.
Powell struck a familiar tone in his press conference, stressing that the Fed is well positioned to respond to incoming data but offering no hint that another cut is imminent. At the same time, he firmly ruled out rate hikes, making it clear they’re not part of the baseline outlook.
On inflation, Powell pointed directly to import tariffs introduced under Donald Trump as one factor keeping price pressures above the Fed’s 2% target, reinforcing the idea that part of the inflation overshoot is policy-driven rather than demand-led.
Crucially, the December cut itself was far from a done deal. Minutes released on December 30 showed deep divisions within the Committee, with several officials saying the decision was finely balanced and that holding rates steady was a very real option.
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 hurt credibility. That tension showed up clearly in the vote, with dissent coming from both hawkish and dovish camps, an unusual outcome, and now the second meeting in a row where that’s happened.
While the Fed has 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 falling or unemployment rises more sharply than expected.
Complicating matters further is the patchy data backdrop following the prolonged government shutdown, leaving policymakers somewhat in the dark. Several officials made it clear they’d prefer a fuller run of labour-market and inflation data before backing any further cuts.
The ECB is comfortable sitting on its hands
Across the Atlantic, the ECB also chose to stand pat at its December 18 meeting and sounded noticeably more at ease doing so.
Policymakers nudged parts of their growth and inflation outlook slightly higher, a combination that all but shuts the door on near-term rate cuts. Recent data have helped calm 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 much of the heavy lifting, a pattern officials expect to persist for a while.
In its updated projections, inflation is still seen dipping below 2% in 2026 and 2027, largely thanks 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 lock the Bank into any preset policy path, stressing once again 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 bank’s 2% medium-term target and supportive of rates staying at 2.00% for now.
On the latter, market pricing reflects that comfort, with implied rates pointing to barely 3 basis points of easing this year.
Politics drags on the buck, again
The US Dollar comes under renewed pressure on Monday after the Justice Department threatened 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.
Positioning still backs the Euro
Speculative positioning continues to lean in favour of the Euro (EUR), and enthusiasm appears to be rebuilding.
According to Commodity Futures Trading Commission (CFTC) data for the week ending January 6, non-commercial net longs climbed 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.
Additionally, total open interest rose to a three-week high near 882K contracts, pointing to rising participation and slightly stronger conviction on the bullish side.
What markets are focused on now
Near term: Tuesday’s US CPI release is the immediate focal point. A strong inflation print would likely reignite dollar strength and keep EUR/USD under pressure as expectations for further Fed cuts fade. 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 path could invite fresh sellers. On the upside, a clean break and hold above 1.1800 would materially improve momentum.
Tech corner
The continuation of the move southwards faces immediate support at the so far 2025 bottom at 1.1618 (January 9). Once this area is cleared, spot could challenge its critical 200-day SMA at 1.1568 prior to the November floor at 1.1468 (November 5), and the August base at 1.1391 (August 1).
On the other hand, bulls face their next obstacle at the December 2025 top at 1.1807 (December 24). Up from here comes the 2025 ceiling at 1.1918 (September 17), all ahead of the 1.2000 threshold.
Momentum indicators keep pointing south in the near term: The Relative Strength Index (RSI) bounces to the 45 zone, alleviating the idea of further losses, while the Average Directional Index (ADX) near 22 suggest a still strong trend.
Bottom line
For now, EUR/USD is being driven far more by developments in the US than by anything happening in Euroland.
Until the Fed offers clearer guidance on how far it’s prepared 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 single currency benefits when the Greenback softens, but it’s still waiting for a stronger story of its own.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the 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.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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