EUR/USD Price Forecast: The 200-day SMA looms closer
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UPGRADE- EUR/USD comes under heavy pressure, breaking below the 1.1600 support.
- The US Dollar reclaimed its shine, advancing to six-week highs amid higher yields.
- US Initial Jobless Claims dropped against initial estimates last week.
The selling pressure on EUR/USD remains everything but abated so far on Thursday, always against the backdrop of the robust recovery in the US Dollar (USD), which appears reinforced by data and increasing US Treasury yields across the curve.
EUR/USD’s downside bias gathers extra pace on Thursday, slipping back below the key 1.1600 support to hit new multi-week troughs near 1.1590.
The pair’s weakness comes on the back of the intense march north in the Greenback, which at the same time lifts the US Dollar Index (DXY) to six-week highs well past the 99.00 hurdle in a context of higher US Treasury yields across different time frames and a small pullback in the German 10-year bund yields.
Fresh buying interest in the buck emerges after investors assess the firm tone from weekly Initial Jobless Claims, setting aside concerns over the Fed’s independence and rising bets for further rate cuts by the Federal Reserve (Fed) in the upcoming months.
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 the real message came through the tone rather than the move itself. A split vote and carefully chosen language from Chair Jerome Powell made it clear the Fed isn’t in a hurry to keep easing.
Powell reiterated that inflation is still “somewhat elevated” and stressed that policymakers want firmer evidence the labour market is cooling in an orderly way, without slipping into something more problematic. Updated projections barely moved, still showing just one additional 25-basis-point cut pencilled in for 2026, alongside steady growth and only a modest uptick in unemployment.
The press conference followed a familiar script: The Fed is comfortable sitting back and letting the data do the talking. Powell ruled out rate hikes as a base case, but just as importantly, he avoided any hint that another cut is imminent. He also pointed to import tariffs introduced under former President Donald Trump as one factor keeping inflation sticky, underlining that some of the pressure is policy-driven rather than cyclical.
Minutes that came out later showed how close the decision was. In fact, there are still deep divisions within the Federal Open Market Committee (FOMC). Some members want to ease up on the economy before the job market cools down, while others are worried that progress on inflation could stall. The main point is clear: people are losing faith in more cuts, and a pause now seems like the easiest thing to do unless inflation gets a lot better or unemployment goes up a lot more.
The ECB looks relaxed, and in no rush
Across the Atlantic, the European Central Bank (ECB) also stayed on hold at its December 18 meeting and sounded increasingly comfortable with that stance. Modest upgrades to parts of the growth and inflation outlook have effectively closed the door on near-term rate cuts.
Recent data have helped steady the mood. Euro area growth has surprised slightly to the upside, exporters have handled US tariffs better than feared, and domestic demand has softened the blow from persistent weakness in manufacturing.
Inflation dynamics continue to back the ECB’s approach. Price pressures are hovering close to the 2% target, with services inflation doing most of the heavy lifting, a pattern policymakers expect to persist.
Updated projections still show inflation dipping below target in 2026–27 on lower energy prices before drifting back towards 2% later on. At the same time, officials flagged the risk that services inflation could remain sticky, as wage growth slows only gradually.
Growth forecasts were nudged higher as well, reinforcing the idea that the economy is proving more resilient than many had feared. As President Christine Lagarde put it, exports remain “sustainable” for now. She again stressed that policy decisions will be taken meeting by meeting and guided by incoming data.
Markets have absorbed the message, as they are pricing just over 4 basis points of easing this year, consistent with an ECB that sees little urgency to act.
Politics adds noise to the Dollar story
The latest pullback in the US Dollar followed reports that the Justice Department could seek to indict Powell over comments he made to Congress about cost overruns linked to 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 over the Fed’s independence, weighing on confidence in the Greenback.
Adding another layer of uncertainty, President Trump said this week that candidates to succeed Powell could be announced in the coming weeks.
Positioning swings back toward the Euro
Speculative positioning continues to lean in favour of the Euro (EUR), with momentum starting to rebuild.
According to Commodity Futures Trading Commission (CFTC) data for the week ending January 6, non-commercial net long positions 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 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 Friday’s batch of US hard data, which should offer a clearer snapshot of the economy’s underlying health.
Risk: If US yields go up again or the Fed's outlook becomes more hawkish, new sellers could quickly join the pair. If the price breaks below the important 200-day Simple Moving Average (SMA) without any problems, it could start a bigger correction in the medium term.
Tech corner
The continuation of the downside momentum could prompt EUR/USD to dispute its critical 200-day SMA at 1.1579, while the loss of this region could pave the way for a deeper decline to the November floor at 1.1468 (November 5), followed by the August base at 1.1391 (August 1).
On the other hand, the December 2025 high at 1.1807 (December 24) emerges as the immediate resistance. Once the latter is cleared, the pair could attempt a test of the 2025 ceiling at 1.1918 (September 17) prior to the 1.2000 milestone.
Momentum indicators continue to favour extra retracements: The Relative Strength Index (RSI) deflates to around 37, while the Average Directional Index (ADX) near 19 still indicates a decently strong 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 eurozone delivers a more convincing cyclical upswing, any recovery in the pair is likely to be steady rather than eye-catching.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
- EUR/USD comes under heavy pressure, breaking below the 1.1600 support.
- The US Dollar reclaimed its shine, advancing to six-week highs amid higher yields.
- US Initial Jobless Claims dropped against initial estimates last week.
The selling pressure on EUR/USD remains everything but abated so far on Thursday, always against the backdrop of the robust recovery in the US Dollar (USD), which appears reinforced by data and increasing US Treasury yields across the curve.
EUR/USD’s downside bias gathers extra pace on Thursday, slipping back below the key 1.1600 support to hit new multi-week troughs near 1.1590.
The pair’s weakness comes on the back of the intense march north in the Greenback, which at the same time lifts the US Dollar Index (DXY) to six-week highs well past the 99.00 hurdle in a context of higher US Treasury yields across different time frames and a small pullback in the German 10-year bund yields.
Fresh buying interest in the buck emerges after investors assess the firm tone from weekly Initial Jobless Claims, setting aside concerns over the Fed’s independence and rising bets for further rate cuts by the Federal Reserve (Fed) in the upcoming months.
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 the real message came through the tone rather than the move itself. A split vote and carefully chosen language from Chair Jerome Powell made it clear the Fed isn’t in a hurry to keep easing.
Powell reiterated that inflation is still “somewhat elevated” and stressed that policymakers want firmer evidence the labour market is cooling in an orderly way, without slipping into something more problematic. Updated projections barely moved, still showing just one additional 25-basis-point cut pencilled in for 2026, alongside steady growth and only a modest uptick in unemployment.
The press conference followed a familiar script: The Fed is comfortable sitting back and letting the data do the talking. Powell ruled out rate hikes as a base case, but just as importantly, he avoided any hint that another cut is imminent. He also pointed to import tariffs introduced under former President Donald Trump as one factor keeping inflation sticky, underlining that some of the pressure is policy-driven rather than cyclical.
Minutes that came out later showed how close the decision was. In fact, there are still deep divisions within the Federal Open Market Committee (FOMC). Some members want to ease up on the economy before the job market cools down, while others are worried that progress on inflation could stall. The main point is clear: people are losing faith in more cuts, and a pause now seems like the easiest thing to do unless inflation gets a lot better or unemployment goes up a lot more.
The ECB looks relaxed, and in no rush
Across the Atlantic, the European Central Bank (ECB) also stayed on hold at its December 18 meeting and sounded increasingly comfortable with that stance. Modest upgrades to parts of the growth and inflation outlook have effectively closed the door on near-term rate cuts.
Recent data have helped steady the mood. Euro area growth has surprised slightly to the upside, exporters have handled US tariffs better than feared, and domestic demand has softened the blow from persistent weakness in manufacturing.
Inflation dynamics continue to back the ECB’s approach. Price pressures are hovering close to the 2% target, with services inflation doing most of the heavy lifting, a pattern policymakers expect to persist.
Updated projections still show inflation dipping below target in 2026–27 on lower energy prices before drifting back towards 2% later on. At the same time, officials flagged the risk that services inflation could remain sticky, as wage growth slows only gradually.
Growth forecasts were nudged higher as well, reinforcing the idea that the economy is proving more resilient than many had feared. As President Christine Lagarde put it, exports remain “sustainable” for now. She again stressed that policy decisions will be taken meeting by meeting and guided by incoming data.
Markets have absorbed the message, as they are pricing just over 4 basis points of easing this year, consistent with an ECB that sees little urgency to act.
Politics adds noise to the Dollar story
The latest pullback in the US Dollar followed reports that the Justice Department could seek to indict Powell over comments he made to Congress about cost overruns linked to 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 over the Fed’s independence, weighing on confidence in the Greenback.
Adding another layer of uncertainty, President Trump said this week that candidates to succeed Powell could be announced in the coming weeks.
Positioning swings back toward the Euro
Speculative positioning continues to lean in favour of the Euro (EUR), with momentum starting to rebuild.
According to Commodity Futures Trading Commission (CFTC) data for the week ending January 6, non-commercial net long positions 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 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 Friday’s batch of US hard data, which should offer a clearer snapshot of the economy’s underlying health.
Risk: If US yields go up again or the Fed's outlook becomes more hawkish, new sellers could quickly join the pair. If the price breaks below the important 200-day Simple Moving Average (SMA) without any problems, it could start a bigger correction in the medium term.
Tech corner
The continuation of the downside momentum could prompt EUR/USD to dispute its critical 200-day SMA at 1.1579, while the loss of this region could pave the way for a deeper decline to the November floor at 1.1468 (November 5), followed by the August base at 1.1391 (August 1).
On the other hand, the December 2025 high at 1.1807 (December 24) emerges as the immediate resistance. Once the latter is cleared, the pair could attempt a test of the 2025 ceiling at 1.1918 (September 17) prior to the 1.2000 milestone.
Momentum indicators continue to favour extra retracements: The Relative Strength Index (RSI) deflates to around 37, while the Average Directional Index (ADX) near 19 still indicates a decently strong 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 eurozone delivers a more convincing cyclical upswing, any recovery in the pair is likely to be steady rather than eye-catching.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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