EUR/USD Price Forecast: Interim top in place?

EUR/USD continues to grind lower, reinforcing the idea that January’s yearly peak near the 1.2100 area may prove to be an interim top, at least for now. With that in mind, investor attention is starting to pivot towards the next big US catalysts: Nonfarm Payrolls (NFP) and the latest inflation readings from the Consumer Price Index (CPI).

Fresh selling pressure hit EUR/USD on Wednesday, dragging it away from Tuesday’s solid rebound and pushing it back towards the 1.1800 zone once again.

The pullback comes alongside renewed strength in the US Dollar (USD), which is hovering near multi-day highs around the 97.70 area. That’s happening even as US Treasury yields trade mixed across the curve, suggesting FX rather than rates is doing the heavy lifting for now.

Fed: steady confidence, no rush to move

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

The tone was marginally more confident on growth, with policymakers 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 points 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, arguing that softer job gains reflect weaker labour demand alongside slower labour force growth. On inflation, Powell suggested 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.

Crucially, Powell stressed that policy decisions will remain meeting by meeting, with no preset path. He also made it clear 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: patience, but not complacency

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

According to the latest ECB Accounts, policymakers were clear that there is no urgency to change course. With inflation close to target, there is scope to remain patient, even as lingering risks mean flexibility remains important.

Members of the Governing Council (GC) were also keen to stress that patience should not be mistaken for complacency. Policy is seen as being in a “good place” for now, but very much not on autopilot.

Markets appear to have taken that guidance on board, ruling out any move at Thursday’s meeting and pricing in close to 6 basis points of easing over the year ahead.

Positioning: still supportive, but enthusiasm fading

Speculative positioning remains broadly supportive of the single currency, although signs of waning momentum are starting to creep in.

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

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

What markets are watching next

Near term: The spotlight remains firmly on the USD. Markets are refocusing on incoming US data, particularly labour market releases and inflation prints. In Europe, Thursday’s ECB gathering is unlikely to generate much excitement for FX.

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

Tech corner

The loss of the February floor at 1.1775 (February 2) could open the door to a visit to the temporary 55-day and 100-day SMAs at 1.1703 and 1.1678, respectively. Further south, EUR/USD faces the next support at the key 200-day SMA at 1.162, prior to the November 2025 base at 1.1468 (November 5) and the August 2025 floor at 1.1391 (August 1).

On the other hand, bulls should initially target the 2026 ceiling at 1.2082 (January 28), seconded by the May 2021 high at 1.2266 (May 25) and before the 2021 peak at 1.2349 (January 6).

In addition, momentum indicators continue to favour further gains, but impulse appears to be fading. On this, the Relative Strength Index (RSI) navigates near 52, while the Average Directional Index (ADX) above 32 signals a strong 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 be gradual rather than morph into a clean, decisive breakout.