EUR/USD breakdown – More downside ahead? [Video]

A fragile pause in a strong downtrend

EUR/USD is at a crucial inflection point. After weeks of grinding lower, the pair is now holding just near the 1.1608 level — a key structure from the September low. The sell-off accelerated after price broke below its 1.178–1.165 consolidation range, as seen on the 4-hour chart.

While this area briefly acted as a compression zone, the downside break confirmed the resumption of the bearish trend driven by U.S. dollar strength and weak euro sentiment. The dollar remains supported as traders seek stability amid a U.S. government shutdown, which has suspended key data releases such as employment and inflation figures.

In Europe, political instability in France — marked by budget gridlocks and the prime minister’s resignation — continues to pressure the single currency. The European Central Bank faces limited room for stimulus while growth in Germany remains sluggish and energy costs persistently high.

The result is a macro landscape where traders prefer the safety and liquidity of the dollar, while the euro struggles to attract risk capital despite being technically oversold.

Dollar liquidity still king

The absence of fresh U.S. data has paradoxically favored the dollar. Without evidence of weakening fundamentals, markets lean toward the Fed’s higher-for-longer narrative, especially as risk assets pause near record highs.

Fed officials have suggested further cuts may come in 2026, but the near-term outlook still favors tighter liquidity conditions and demand for the greenback — a headwind for EUR/USD.

Meanwhile, European traders remain cautious as trade frictions and political challenges compound the region’s already fragile recovery.

Technical outlook

Range breakdown and short-term retest

On the 4-hour chart, EUR/USD remains locked in a bearish sequence after breaking below the 1.1770–1.1670 range. The sell-off found temporary demand at 1.1608, a key support and liquidity pocket. Price is currently staging a shallow retracement, likely a retest of broken structure rather than a confirmed reversal.

Momentum structure remains bearish: lower highs, lower lows, and no confirmed displacement shift. The 1.1670–1.1700 zone acts as a premium retracement area where sellers may re-enter.

Bullish scenario: Liquidity reclaim and structural shift

• The bullish scenario hinges on a successful reclaim of the 1.1670–1.1700 zone (former support turned resistance).
• Price may form a higher-low structure above 1.1620, signaling early accumulation and intent to drive higher.
• If buyers maintain structure and break above 1.1700, this would invalidate the bearish leg and open a path for a multi-day rally back toward 1.1750–1.1780.
• Such a move would confirm that the market has absorbed prior sell-side liquidity and flipped momentum short-term bullish.

Bullish targets:

• 1.1670 – 1.1700 – 1.1750 – 1.1780.

Invalidation:

• Close back below 1.1620 would negate this structure.

Bearish scenario: Retest rejection and continuation to new lows

• The bearish case unfolds if price rejects the 1.1670–1.1700 liquidity zone and fails to establish higher highs.
• A rejection pattern here could mark a lower-high formation, signaling distribution before continuation.
• A break below 1.1608 would confirm that buyers failed to defend structure, setting the stage for a clean continuation toward 1.1550 and 1.1500.
• This would represent a full completion of the July 30 imbalance fill, aligning with the macro bearish tone for EUR/USD.

Bearish Targets:

• 1.1608 – 1.1550 – 1.1500.

Invalidation:

• Sustained 4H close above 1.1700 would invalidate further downside continuation.

Final thoughts

EUR/USD remains fragile, with every bounce appearing corrective rather than impulsive. Unless the euro finds fundamental relief — whether through stabilizing European politics or softer U.S. yields — the pair may continue drifting lower in the short term.

For now, 1.1608 stands as the battlefield. A clean defense could spark a short-term recovery; a decisive break will reaffirm the dominance of the dollar and extend the downtrend.