EUR/USD Price Forecast: Outlook should shift to bearish below 1.1660
- EUR/USD drops further and threatens its key 200-day SMA near 1.1660.
- The US Dollar picks up strong upside traction on the back of safe haven demand.
- The preliminary inflation figures in the euro bloc will gather attention on Tuesday.
The short-term outlook for EUR/USD has been consistently deteriorating since the rejection from yearly peaks near the 1.2100 hurdle recorded in late January. The continuation of ongogin leg lower threatens to breach below its critical 200-day SMA in the 1.1660 region. If this area is cleared, the likelihood of a deeper pullback should re-emerge on the horizon.
EUR/USD accelerates its losses and recedes to the 1.1670 region in a very negative start to the week, hitting at the same time new six-week troughs.
The severe pullback in the pair comes along with an equally marked decline in the broader risk complex, all following the robust improvement in the US Dollar, which remains underpinned by steady safe haven demand in response to the deteriorating geopolitical landscape in the Middle East.
Against that backdrop, the US Dollar Index (DXY) has largely exceeded the 98.00 barrier to clock fresh multi-week tops alongside a jump in US Treasury yields across the curve.
Fed: steady hands, open options
The Federal Reserve (Fed) left the Fed Funds Target Range (FFTR) unchanged at 3.50% to 3.75% in January. No surprise. Markets were fully priced for a hold.
What shifted was the tone. Policymakers sounded more at ease with the backdrop. Growth is holding up better than feared, and the Federal Open Market Committee (FOMC) no longer sees employment risks as deteriorating. Inflation remains somewhat elevated, but the urgency has clearly faded.
The 10 to 2 vote, with two members favouring a 25 basis point cut, is a reminder that the internal debate has not disappeared.
At the press conference, Chair Jerome Powell described policy as being in a good place, with decisions taken meeting by meeting and no preset path. He downplayed recent inflation surprises, pointing to tariffs, and stressed that services disinflation continues. A hike is not the base case.
The Minutes reinforced that balance. Cuts remain possible if inflation cools as expected, but hikes have not been ruled out if price pressures prove sticky. For now, the Fed is data dependent, not pivoting.
ECB: confident, but cautious
The European Central Bank (ECB) also left rates unchanged in a unanimous and widely expected move.
The message was disciplined. Inflation is still projected to return to the 2% target over the medium term, while service inflation is under close watch, and a modest dip in prices is expected in 2026.
Christine Lagarde sounded composed but careful last week, insisting inflation remains on track to return to 2% over time, with food price pressures easing gradually into 2026. She pointed to support from solid wage growth, a resilient labour market and firmer investment, while reiterating that the ECB monitors the Euro (EUR) but does not target it. She also noted no signs so far of AI driven job losses.
The takeaway is simple. The ECB feels it is in a good place, but policy remains fully data dependent and ready to adjust if needed.
Markets, meanwhile, price in just over 1 basis point of easing this year, while a hold at the March meeting is almost fully discounted.
Euro positioning: long, but less convinced
The latest Commodity Futures Trading Commission (CFTC) data show speculative net longs in the Euro (EUR) fell to roughly 157K contracts in the week to February 24, marking a four-week low.
Institutional players (mostly hedge funds) also trimmed exposure, with gross longs retreating towards multi-week troughs near 211K contracts.
The bigger picture has not flipped. The market is still structurally long EUR. But the enthusiasm behind that trade is no longer building; it is easing slightly.
However, open interest has fallen for a second straight week, down to around 911.3K contracts. That tells us participation is thinning out. This does not look like aggressive new shorting. It looks more like investors quietly trimming exposure and taking a bit of risk off the table.
Put simply:
The long bias is still there, just with less punch. Net longs remain elevated by historical standards. This is not a bearish turn. It is more a cooling of bullish conviction.
This feels like de-risking rather than capitulation. The drop in open interest suggests consolidation, not panic or forced liquidation.
And importantly, with positioning still meaningfully long, the single currency remains vulnerable to the US narrative. If Fed expectations harden or US data continue to surprise on the upside, renewed US Dollar strength could quickly test that remaining conviction.
What is driving EUR/USD now
Near term, the Greenback continues to set the tone, particularly amid renewed trade tensions and geopolitical noise. The relative calm from the ECB side is doing little to alter that dynamic.
Next up are advanced inflation readings in the euro area, although in the current environment of elevated volatility and geopolitical uncertainty, their market impact may prove limited.
On the risk side, if the Fed stays cautious with solid US data behind it, the US Dollar retains a natural floor. Technically, a decisive break below the 200 day Simple Moving Average (SMA) would shift the picture and increase the risk of a deeper correction in spot.
Technical corner
In the daily chart, EUR/USD trades at 1.1693. The pair has retreated below the 55-day Simple Moving Average (SMA) near 1.1770 while still challenging the 100- and 200-day SMAs clustered around 1.1690 and 1.1660 respectively, keeping a mildly bullish but weakening bias. The Relative Strength Index (RSI) has fallen to 38, indicating fading upside momentum after the recent failure to sustain gains above 1.18. The Average Directional Index (ADX) easing back toward 18 underscores a loss of trend strength, pointing to consolidation risk after the prior advance.
Immediate resistance appears at 1.1766, where the recent horizontal barrier converges with the 55-day SMA and capped the latest bounce, followed by a higher resistance at 1.2082. A daily close back above 1.1766 would reopen the path toward 1.2082 and the more distant resistance band at 1.2266 and 1.2350. On the downside, initial support is located at 1.1578, ahead of deeper cushions at 1.1491 and 1.1469, with a break of 1.1578 exposing the lower support at 1.1392 and signalling a shift toward a broader bearish phase.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: Washington leads, Frankfurt follows
EUR/USD is being driven far more by Washington than by Frankfurt.
Until the Fed’s 2026 rate path becomes clearer, or the euro area delivers a more convincing upswing, rallies are likely to remain measured.
For now, it remains Dollar first, euro second.
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.
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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.
