EUR/USD Price Forecast: Extra weakness should not be ruled out
- EUR/USD makes a sharp U-turn following earlier losses near the 1.1800 support.
- The US Dollar surrenders almost all of its daily gains following multi-day highs.
- Germany, EMU Economic Index eased a tad in February, ZEW said.
EUR/USD’s latest push higher looks to have stalled a touch just north of 1.1900, where some light resistance is capping gains for the time being. Still, the bigger picture hasn’t really changed. The underlying tone remains fairly constructive, and unless sentiment shifts meaningfully, a move towards the 1.2000 handle still feels like the next natural step on the upside.
The selling interest around the single currency loses momentum in the latter part of Tuesday's session, encouraging EUR/USD to reverse its earlier dip to the vicinity of the 1.1800 contention zone and reclaim the mid-1.1800s ahead of the closing bell on Wall Street on Tuesday.
Indeed, the marked deceleration in the Greenback now favours the recovery in the risk-associated assets , with the US Dollar Index (DXY) abandoning the area of multi-day peaks just past the 97.50 level despite a humble uptick in US Treasury yields across the curve.
Fed, holding steady and sounding calmer
The Federal Reserve left the Fed Funds Target Range (FFTR) unchanged at 3.50% to 3.75% at its late January meeting, exactly as expected.
The real shift was in the tone. Indeed, policymakers sounded a little more comfortable with the growth outlook, while still acknowledging that inflation remains somewhat elevated. Importantly, the Federal Open Market Committee (FOMC) no longer sees employment risks as deteriorating. Adding some colour to the meeting, the decision passed 10 to 2, with two dissenters favouring a 25 basis points cut.
At the press conference, Chair Jerome Powell stressed that the current stance is considered appropriate, with policy remaining strictly meeting by meeting and with no preset path. Furthermore, Powell downplayed recent inflation surprises, arguing that tariffs explain a good part of the overshoot, and reiterated that services disinflation is still progressing. More importantly, no one on the Committee is treating a rate hike as the base case.
The takeaway is straightforward: confidence has improved, but there is no urgency to move.
ECB, steady and sticking to the script
The European Central Bank (ECB) also left its three key rates unchanged in a unanimous and widely anticipated decision.
The communication was calm and consistent: the medium-term outlook still points to inflation returning to the 2% target, and recent data have not materially changed that assessment. Additionally, wage indicators are stabilising, although service prices and pay dynamics remain under close watch. Still around inflation, the bank still sees a modest dip in consumer prices in 2026, reinforcing the idea that it can afford patience.
Later at the event, President Christine Lagarde described risks as broadly balanced and reiterated that policy remains data dependent and agile. The Governing Council (GC) acknowledged recent foreign exchange moves, judged them to be within historical norms, and stressed 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 currently price just over 10 basis points of easing this year and widely expect rates to remain unchanged again at the March 19 meeting.
Euro positioning, conviction building and tension rising
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 constructive.
But the story is not one-sided.
Institutional accounts, largely hedge funds, have also lifted short exposure to around 235.8K contracts, the highest since May 2023. When both longs and shorts rise together, it usually signals rising conviction on both sides rather than a simple bullish extension.
Open interest edged up to roughly 926.3K contracts, fresh record highs. This is not a squeeze. It is an actively contested market, with growing engagement from bulls and bears alike.
What it means for EUR/USD
Net positioning still leans in favour of the Euro (EUR), but the increase in opposing shorts suggests the path higher is becoming less straightforward. The trade is more crowded and more sensitive to incoming macro catalysts.
In this kind of backdrop, further gains typically need validation, either via stronger euro area data or clearer policy divergence. Without that confirmation, volatility can rise quickly as both camps push their narrative.
What to watch
Near term: The US Dollar remains the key driver, with labour market data, inflation releases and geopolitical developments likely to shape the pair’s price action in the sessions ahead. The immediate focal point is Wednesday’s release of the FOMC Minutes from the January 28 meeting.
Risks: A Fed that remains cautious for longer continues to underpin the Greenback, particularly against an ECB that is effectively in wait and see mode. From a technical standpoint, a clear break below the 200 day Simple Moving Average would increase the risk of a deeper corrective phase.
Tech corner
In the daily chart, EUR/USD trades at 1.1835. The Simple Moving Averages (SMA) trend higher, with the 55-day above the 100- and 200-day, and price holding above all three to keep the near-term bias pointed upward. The 55-day SMA currently stands at 1.1757, offering nearby dynamic support. The Relative Strength Index prints 52 (neutral), easing from recent highs and suggesting momentum has moderated.
The Average Directional Index eases to 28, indicating the trend has cooled to a moderate profile after the latest advance. Immediate resistance aligns at 1.2082, followed by 1.2266. Support is seen at 1.1766, then at 1.1578. A daily close above the first barrier would open the path toward the next, while a break below the nearest support would expose the lower level.
(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 stay 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.
