EUR/USD Price Forecast: Bullish view in place above the 200-day SMA

Despite the sharp pullback seen recently, the broader EUR/USD story still looks intact. The pair continues to eye the area around the yearly highs near 1.2100, helped by a loss of momentum in the so-called “Warsh trade”.

EUR/USD manages to steady itself and retrace part of the recent sell-off on Tuesday, pushing back above the 1.1800 handle. This is largely driven by a corrective dip in the US Dollar (USD), which has struggled to build on recent strong gains.

On the latter, the US Dollar Index (DXY) gives back some ground after two consecutive daily advances, easing back towards the 97.30 area. In the same line, the softer tone in the Greenback appears reinforced by lower US Treasury yields across the curve.

Fed: confident tone, no urgency

The Federal Reserve (Fed) left the Fed Funds Target Range (FFTR) unchanged at 3.50%–3.75% at its January meeting, in line with expectations.

Policymakers sounded slightly more confident on growth, noting that economic activity continues to expand at a solid pace. Inflation was still described as somewhat elevated, and uncertainty remains high, but notably, the Federal Open Market Committee (FOMC) no longer sees downside risks to employment as intensifying. The decision passed by a 10–2 vote, with Miran and Waller dissenting in favour of a 25 basis point rate cut.

At the press conference, Chair Jerome Powell reiterated that the US economy remains on firm footing and that current policy settings are appropriate. He pointed to signs of labour market stabilisation, with softer job gains reflecting weaker labour demand and slower labour force growth. On inflation, Powell argued that much of the recent overshoot is being driven by tariff-related goods prices rather than underlying demand, while services disinflation continues. He also noted that tariff effects are likely to peak around mid-year.

Powell stressed that policy decisions will remain meeting by meeting, with no preset path. Crucially, he underlined that no one on the Committee sees a rate hike as the base case, adding that risks on both sides of the mandate have eased somewhat.

ECB: patient stance, eyes wide open

The European Central Bank (ECB) also stayed on hold at its December 18 meeting, striking a calmer and more patient tone that has pushed expectations for near-term rate cuts further out. In addition, small upgrades to growth and inflation forecasts helped reinforce that message.

According to the latest ECB Accounts, policymakers made it clear there is no urgency to change course. With inflation close to target, there is room to remain patient, even as lingering risks mean flexibility remains essential.

Additionally, members of the Governing Council (GC) were keen to stress that patience should not be mistaken for complacency; while policy is seen as being in a “good place” for now, it is very much not on autopilot.

Markets appear to have taken that message on board, ruling out any move on rates at Thursday’s meeting and pencilling in just over 5 basis points of easing over the year ahead.

Positioning: supportive, but less energetic

Speculative positioning remains broadly supportive of the single currency, although signs of fading enthusiasm are starting to emerge.

Commodity Futures Trading Commission (CFTC) data for the week ending January 27 show non-commercial net long positions rising to two-week highs around 132.1K contracts. At the same time, institutional players added to their short exposure, which now stands near 181.6K contracts.

Open interest also increased meaningfully, climbing to around 929.3K contracts, the highest level in six weeks, and suggesting participation is picking up again, alongside a tentative return of confidence.

What to keep an eye on

Near term: The spotlight remains firmly on the US Dollar. Markets are refocusing on incoming US data, particularly from the labour market. In Europe, attention will shift to advance inflation readings across the bloc, while the upcoming ECB event is unlikely to stir much excitement in FX markets.

Risks: A Fed that stays cautious for longer could quickly swing momentum back in favour of the US Dollar. From a technical standpoint, a clean break below the 200-day Simple Moving Average (SMA) would also increase the risk of a deeper and more sustained correction.

Tech corner

The EUR/USD’s decline seems to have met some contention in the 1.1770-1.1780 band for now. If spot breaches below the February floor at 1.1775 (February 2), it could then attempt a move toward its provisional 55-day and 100-day SMAs at 1.1699 and 1.1678, respectively. Down from here comes the key 200-day SMA at 1.1610, while the loss of this region could put a test of the November 2025 valley at 1.1468 (November 5) back on the radar prior to the August base at 1.1391 (August 1).

On the upside, initial resistance emerges at the 2026 ceiling at 1.2082 (January 28), ahead of the May 2021 high at 1.2266 (May 25) and the 2021 top at 1.2349 (January 6).

Furthermore, momentum indicators seem to signal some exhaustion of the bullish move. That said, the Relative Strength Index (RSI) hovers around 53, and the Average Directional Index (ADX) remains close to 32, pointing to a still firm trend.

Bottom line

For now, EUR/USD is being driven far more by developments in the US than by anything coming out of the euro area.

Until the Fed offers clearer guidance on its 2026 rate path, or the eurozone delivers a more convincing cyclical upswing, any upside is likely to unfold gradually rather than turn into a clean, decisive breakout.