EUR/USD Price Forecast: Door open to a deeper pullback
- EUR/USD remains on the back foot this week, breaching below the 1.1800 support.
- The US Dollar stays well bid, climbing to multi-day highs following the Fed Minutes.
- The ECB’s Lagarde could step down before her term expires, according to FT.
EUR/USD’s latest run higher seems to have lost a bit of steam just above 1.1900 the figure, where some mild resistance is keeping a lid on things for now. That said, the broader bullish story hasn’t really shifted, and unless we see a meaningful turn in sentiment, a push towards the 1.2000 mark looks like the next logical move on the topside.
The continuation of the leg lower motivates EUR/USD to break below the 1.1800 contention zone in the latter part of the NA session on Wednesday.
Indeed, the persistent decline in spot comes in response to the relentless bounce in the US Dollar (USD), which was reinforced in the wake of the release of the FOMC Minutes.
Indeed, the marked advance in the Greenback lifts the US Dollar Index (DXY) to the area of multi-day highs north of 97.50 accompanied by a decent uptick in US Treasury yields across the board.
Fed: steady hands, calmer tone
The Federal Reserve (Fed) left the Fed Funds Target Range (FFTR) unchanged at 3.50% to 3.75% at its late January meeting, exactly as markets had anticipated.
The real shift wasn’t in the decision; it was in the tone, as rate setters sounded more at ease with the growth outlook, even as they acknowledged that inflation remains somewhat elevated. Importantly, the Federal Open Market Committee (FOMC) no longer sees employment risks as deteriorating. In a separate note, the vote passed 10 to 2, with two dissenters preferring a 25 basis points cut.
At his usual press conference, Chair Jerome Powell made it clear that the current stance is viewed as appropriate, while policy decisions remain firmly meeting by meeting, with no preset path. He also played down recent inflation surprises, arguing that tariffs explain much of the overshoot and reiterating that services disinflation continues to make progress. Meanwhile, no one on the Committee is treating a rate hike as the base case.
The message is simple: confidence has edged higher, but there is still no urgency to move.
The January Minutes showed broad support for holding rates steady, with only a couple of participants favouring a cut. While several policymakers said further easing would likely be appropriate if inflation declines as expected, others stressed that hikes could still be warranted if price pressures remain elevated. Inflation is seen moving toward 2%, but risks of slower, uneven progress remain meaningful. With growth solid and the labour market stabilising, the central bank appears firmly data dependent, not leaning decisively toward rapid cuts.
ECB: steady and sticking to the script
The European Central Bank (ECB) also kept its three key rates unchanged in a unanimous and widely expected decision.
The communication was calm and consistent, while the medium-term outlook still points to inflation returning to the 2% target, and incoming data have not materially altered that assessment. That said, wage indicators seem to be stabilising, although services prices and pay dynamics remain under the microscope. In the meantime, the ECB continues to see a modest dip in consumer prices in 2026, reinforcing the idea that patience remains justified.
At her post-decision Q&A session, President Christine Lagarde described risks as broadly balanced and repeated that policy is data dependent and agile. Furthermore, the Governing Council (GC) acknowledged recent foreign exchange moves but judged them to be within historical norms, stressing once again that there is no exchange rate target.
In short, policy is not on autopilot, but it is not in a hurry either.
Markets are pricing just over 10 basis points of easing this year and broadly expect rates to remain unchanged again at the March 19 meeting.
Euro positioning: conviction building, tension rising
The latest Commodity Futures Trading Commission (CFTC) data show speculative net long positions in the Euro (EUR) climbed to nearly 180.3K contracts in the week to February 10, the highest level since September 2020. On the surface, that keeps the positioning backdrop supportive.
But it is not a one-way story.
Institutional players (mostly hedge funds) have also increased their short exposure to the highest level since May 2023 to around 235.8K contracts. When both longs and shorts rise together, it usually signals growing conviction on both sides rather than a simple bullish extension.
Open interest rose to roughly 926.3K contracts, fresh record highs. This is not a squeeze. It is an actively contested market, with bulls and bears both leaning in.
What it means for EUR/USD
Net positioning still favours the European currency, but the build-up in opposing shorts suggests the path higher is becoming less straightforward. The trade is more crowded and more sensitive to incoming macro catalysts.
What to watch
Near term: The US Dollar remains the dominant driver, as jobs reports, inflation data and geopolitical news are likely to dictate the pair’s price action in the sessions ahead. The immediate focal points are the upcoming advanced PMIs and the US inflation measured by the PCE.
Risks: A Fed that stays cautious for longer continues to underpin the Greenback, particularly against an ECB that is effectively in 'wait and see' mode. From a technical perspective, a clear break below the 200 day Simple Moving Average would raise the risk of a deeper corrective phase.
Technical corner
In the daily chart, EUR/USD trades at 1.1787. The 55-day Simple Moving Average (SMA) climbs above the 100- and 200-day SMAs, with all three rising, reinforcing a bullish bias. Spot holds above these averages, with the 55-day SMA at 1.1759 offering nearby dynamic support. The Relative Strength Index (14) slips to 47 (neutral), tempering immediate momentum. Immediate resistance aligns at 1.2082, while support is seen at 1.1766. Sustained trade above the rising SMAs would preserve the positive tone.
The Average Directional Index (14) eases to 26, indicating moderating trend strength as price steadies above higher-timeframe supports. A daily close above 1.2266 would open 1.2350, strengthening the advance. On the downside, a break beneath 1.1578 would expose 1.1491 and risk a deeper pullback. A hold within the current band would keep the pair consolidating within a bullishly inclined structure.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line
Right now, EUR/USD is being driven far more by the US narrative than by developments in the euro area. With the Fed’s 2026 rate path still lacking clarity and the euro area yet to deliver a convincing cyclical rebound, upside progress is likely to remain gradual rather than morphing into a clean, sustained breakout.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
