EUR/USD Price Forecast: Potential consolidation on the cards
- EUR/USD trades in an inconclusive fashion around the 1.1800 yardstick.
- The US Dollar keeps its bullish mood amid the broader risk-off sentiment.
- As expected, the ECB kept its policy rate unchanged at its meeting.
EUR/USD appears to have run into resistance just below the 1.1800 handle for now. Sellers have struggled to force a clearer move lower from this area, leaving the pair stuck in a holding pattern. With both the Federal Reserve (Fed) and the European Central Bank (ECB) now in the rearview mirror, attention shifts back to incoming data.
A modest rebound in the US Dollar (USD) is keeping EUR/USD slightly on the defensive into the end of the North American session on Thursday, with spot hovering around the 1.1800 area in fairly tight ranges.
The US Dollar Index (DXY), meanwhile, has pushed up to two-week highs and is edging closer to the 98.00 mark. That move is being driven by a dominant risk-off tone, even as US Treasury yields slide across the curve.
Fed: confident, but staying patient
The Fed left the Fed Funds Target Range (FFTR) unchanged at 3.50% to 3.75% at its January meeting, fully in line with expectations.
Policymakers struck a slightly more upbeat tone on growth, while inflation was still described as somewhat elevated. Importantly, the Federal Open Market Committee (FOMC) no longer sees employment risks as deteriorating. The decision passed by a 10 to 2 vote, with two members dissenting in favour of a 25 basis point cut.
Chair Jerome Powell said current policy settings remain appropriate and stressed that decisions will continue to be taken meeting by meeting, with no preset path. He downplayed recent inflation overshoots as largely tariff-driven, noting that services disinflation is still progressing and that no one on the Committee views a rate hike as the base case.
ECB: waiting mode, but alert
The ECB also left all three policy rates unchanged, in a unanimous decision that met expectations on Thursday.
In addition, policymakers reiterated that inflation remains on track to stabilise at the 2% target over the medium term, with nothing in the latest data materially changing the baseline view. Furthermore, wage indicators are pointing towards moderation, even as service prices and wages remain under the microscope. The central bank continues to factor in some inflation undershoot in 2026.
Speaking after the meeting, President Christine Lagarde said risks are broadly balanced and emphasised that policy remains agile and data dependent. The Governing Council (GC) discussed recent FX moves, judged them to be well within historical ranges, and reaffirmed that there is no exchange rate target, reinforcing the message that policy is not locked into a predetermined course.
Positioning: supportive, but losing momentum
Positioning data still lean in favour of the euro, although the enthusiasm looks to be cooling.
Commodity Futures Trading Commission (CFTC) figures 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 short positions, which now stand at around 181.6K contracts.
Additionally, open interest rose markedly to six-week highs around 929.3K contracts, signalling increased participation, albeit alongside more tentative conviction.
What to watch next
Near term: So far, investors’ focus remains on the USD. Markets are looking ahead to US data, particularly labour market releases and inflation prints. In Europe, the ECB meeting now looks unlikely to be a meaningful driver for FX.
Risks: A Fed that stays cautious for longer could quickly tilt momentum back in favour of the USD. From a technical perspective, a decisive break below the 200 day Simple Moving Average (SMA) would also increase the risk of a deeper correction.
Tech corner
The continuation of the downside pressure could motivate EUR/USD to challenge the February base at 1.1775 (February 2). Once this region is cleared, spot might visit the transitory 55-day and 100-day SMAs at 1.1707 and 1.1677, respectively, ahead of the key 200-day SMA at 1.1614. Down from here sits the November 2025 valley at 1.1468 (November 5) prior to the August 2025 low at 1.1391 (August 1).
On the flip side, the immediate resistance emerges at the 2026 ceiling at 1.2082 (January 28). The break above the latter exposes a potential move toward the May 2021 top at 1.2266 (May 25) and the 2021 high at 1.2349 (January 6).
Speaking about momentum indicators, the Relative Strength Index (RSI) looks to consolidate around 52, while the Average Directional Index (ADX) near 32 still indicates a firm trend.
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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 turning into a clean, decisive breakout.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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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.
