EUR/USD Price Forecast: Near-term price action looks at US NFP data

EUR/USD’s downside momentum is gathering pace, opening the door to a deeper near-term pullback as markets position ahead of December’s all-important US Nonfarm Payrolls report.

The pair slips for a third straight session on Thursday, breaking below the 1.1650 level and starting to lean on its interim 55-day SMA near 1.1640. The move fits neatly with the broader bearish tone that has set in since December’s peak north of the 1.1800 area.

The pullback reflects a firmer US Dollar (USD) backdrop, while this improved sentiment around the Greenback has pushed the US Dollar Index (DXY) to fresh multi-week highs near 99.00, helped at the same time by a nice bounce in US Treasury yields across the curve.

The Fed is watching jobs, not rushing cuts

The Federal Reserve (Fed) delivered the rate cut markets had pencilled in for December, but it was the messaging around the decision that really mattered.

A split vote and Chair Jerome Powell’s carefully balanced tone made it clear policymakers are in no hurry to speed up the easing cycle. Officials want more confidence that the labour market is cooling in an orderly fashion and that inflation, which Powell described as “still somewhat elevated”, is genuinely heading back toward target.

Updated projections didn’t shift the narrative much. The median view still shows just one additional 25 basis points cut pencilled in for 2026, unchanged from September. Inflation is expected to ease toward 2.4% by the end of next year, while growth is seen holding up around a respectable 2.3%, with unemployment settling near 4.4%.

Powell struck a familiar tone in the press conference, stressing the Fed is well positioned to respond to incoming data but offering no hint of an imminent follow-up cut. At the same time, he firmly ruled out rate hikes, saying they do not feature in the baseline outlook.

On inflation, Powell pointed directly to import tariffs introduced under President Donald Trump as a factor keeping price pressures above the Fed’s 2% target for now, reinforcing the view that part of the inflation overshoot is policy-driven rather than demand-led.

The December cut, however, was far from a foregone conclusion. Minutes released on December 30 revealed deep divisions within the Committee, with several officials saying the decision was finely balanced and that holding rates steady had been a genuine option.

The fault line was clear: some members wanted to move preemptively as the labour market cools, while others worried inflation progress had stalled and that easing too soon could undermine credibility. That tension showed up in the vote, with dissent coming from both hawkish and dovish camps, an unusual outcome that has now occurred twice in a row.

While the Fed has now delivered three consecutive quarter-point cuts, confidence around further easing is fading. Projections point to just one cut next year, and the policy statement hints at a likely pause unless inflation resumes falling or unemployment rises more sharply than expected.

Adding another layer of complexity is the lack of clean data following the prolonged government shutdown, leaving policymakers partly in the dark. Several officials made it clear they would prefer a fuller run of labour market and inflation data before backing any further cuts.

ECB on pause, and sounding more comfortable with it

The ECB also opted to sit tight at its December 18 meeting, keeping rates unchanged. But the tone felt marginally less dovish than before.

Policymakers nudged parts of their growth and inflation outlook higher, a combination that all but closes the door on near-term rate cuts. Recent data have helped steady nerves: euro area growth has surprised modestly to the upside, exporters have coped better than feared with US tariffs, and domestic demand has helped offset ongoing weakness in manufacturing.

Inflation dynamics remain broadly supportive of the ECB’s stance. Price pressures are hovering close to the 2% target, with services inflation doing much of the heavy lifting, and officials expect that pattern to persist for a while.

In updated projections, inflation is still seen dipping below 2% in 2026 and 2027, largely thanks to lower energy prices, before drifting back to target in 2028. At the same time, the ECB flagged the risk that services inflation could prove stickier than hoped, with wage growth slowing the pace of any decline.

Growth forecasts were revised slightly higher, reflecting an economy that appears more resilient than feared in the face of higher US tariffs and competition from cheaper Chinese imports. As President Christine Lagarde put it, exports remain “sustainable” for now.

The ECB now sees the economy growing 1.4% this year, 1.2% in 2026, and 1.4% in both 2027 and 2028.

Lagarde was careful in her press conference not to lock the Bank into a fixed policy path. Decisions, she stressed, will continue to be taken meeting by meeting and guided by incoming data.

That cautious confidence was reinforced by the ECB’s November consumer survey on inflation expectations. One-, three- and five-year expectations were unchanged at 2.8%, 2.5% and 2.2%, respectively, levels that sit comfortably with inflation settling around the ECB’s 2% medium-term target and support the case for rates staying at 2.00% for now.

Positioning still favours the Euro, but conviction is fading

Speculative positioning remains supportive of the Euro (EUR), though enthusiasm looks a little thinner at the margin.

According to the Commodity Futures Trading Commission (CFTC) data for the week ending December 23, non-commercial net longs rose to around 160K contracts, the highest level since the summer of 2023. At the same time, institutional accounts increased exposure on the other side, with net shorts climbing to more than two-year highs near 209.5K contracts.

Meanwhile, total open interest slipped to three-week lows around 867K contracts, a mix that points to growing participation but with less conviction on both sides of the trade.

What traders are watching now

Near term: Friday’s US Nonfarm Payrolls release is the immediate focal point. A strong print would likely add fuel to the buck’s rebound and keep pressure on spot.

Risk: A renewed rise in US yields or a more hawkish repricing of the Fed path could invite fresh sellers. On the upside, a clean break and hold above 1.1800 would materially improve momentum.

Tech corner

The loss of the short-term 55-day SMA at 1.1639 could pave the way for EUR/USD to challenge its critical 200-day SMA at 1.1561 sooner rather than later. Down from here sits the November base at 1.1468 (November 5), followed by the August trough at 1.1391 (August 1).

On the upside, once the pair clears its December high at 1.1807 (December 24), it could then set sail to a potential visit to the 2025 ceiling at 1.1918 (September 17), prior to the 1.2000 round level.

Momentum indicators seem to be aligned for a deeper correction in the near term. That said, the Relative Strength Index (RSI) drops toward 40, unveiling potential extra losses, while the Average Directional Index (ADX) around 23 is indicative of a still solid trend.

Bottom line

For now, EUR/USD remains more a function of the US side of the equation than anything happening at home.

Until the Fed offers clearer guidance on how far it’s prepared to ease, or the eurozone delivers a more convincing cyclical upswing, any recovery in the pair is likely to be gradual rather than explosive.

In short, the Euro is benefiting from periods of USD softness, but it’s still missing a compelling story of its own.