EUR/USD Price Forecast: the Dollar still sets the tone

Since the rejection from annual highs near the 1.2100 barrier in late January, the short-term outlook for EUR/USD has been deteriorating uninterruptedly. The recent break below the important 200-day SMA also opens up the possibility of further retracements in the near-term horizon.

EUR/USD rapidly leaves behind Wednesday’s lacklustre bullish attempt and refocuses on the downside, trading closer to the area of yearly troughs.

The continuation of the bearish trend comes amid the persistent strength in the US Dollar (USD), which remains mainly propped up by the safe-haven demand in light of the fragile geopolitical landscape in the Middle East. Shrinking bets for further Fed easing also contributes to the Greenback’s positive performance.

The US Dollar Index (DXY), in the meantime, navigates the area beyond the 99.00 hurdle and close to recent multi-week tops.

Fed: steady stance, cautious flexibility

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

What changed was not the decision but the tone. The Federal Open Market Committee (FOMC) appeared more comfortable with the broader economic backdrop. Growth continues to hold up, employment risks are no longer seen as deteriorating, and while inflation remains somewhat elevated, the sense of urgency has clearly eased.

The 10 to 2 vote split, with two members favouring a 25 basis point cut, shows that the internal debate is still very much alive.

Chair Jerome Powell described policy as being in a “good place”, emphasising that decisions will continue to be taken meeting by meeting. On tariffs, he acknowledged that they remain a factor behind recent inflation noise while also highlighting ongoing services disinflation. A rate hike is not the base case, but neither is an imminent pivot.

The Minutes reinforced that balanced message. Rate cuts remain possible if inflation continues to cool, although hikes have not been ruled out should price pressures prove persistent. In short, the Fed remains firmly data dependent.

ECB: patience and watchful eyes

The European Central Bank (ECB) also kept interest rates unchanged in a unanimous decision.

President Christine Lagarde struck a calm yet cautious tone in her latest remarks. Inflation is still expected to return to the 2% target over the medium term, although services prices remain under close scrutiny and further easing is projected into 2026.

Lagarde also pointed to resilient wages, a still-firm labour market and steady investment dynamics across the bloc. At the same time, she reiterated that while the ECB monitors the Euro (EUR), it does not target the exchange rate.

Markets currently price nearly 17 basis points of tightening by year-end, while a hold at the March meeting is almost fully discounted. For now, the ECB appears broadly comfortable with the current stance while continuing to stress its data-dependent approach.

Positioning: long bias, softer conviction

Commodity Futures Trading Commission (CFTC) data show speculative net long positions in the Euro eased to around 157K contracts in the week to February 24, marking a four-week low. Institutional players also trimmed exposure.

The broader positioning structure remains long EUR, although conviction appears to be softening at the margin. Open interest declined for a second consecutive week to roughly 911.3K contracts, signalling position trimming rather than aggressive fresh shorts.

The long bias is still there in practice, although it's not as strong. This seems more like de-risking than giving up. The single currency is still susceptible to a stronger US dollar if US data keeps above expectations, even though positioning is still high.

Market drivers: Washington is still in charge

Near term: the US Dollar emerges as the main driver for the pair’s price action, always underpinned by trade uncertainty and jitters surrounding the geopolitical scenario. Looking at Friday’s docket, the US Nonfarm Payrolls (NFP) is likely to set the tone for the end of the week.

Risks: a stronger-for-longer Greenback should keep the risk complex under intense pressure as long as the geopolitical landscape does not give any signal of improvement. From a technical point of view, a sustained break below the 200-day Simple Moving Average (SMA) would make it more likely that a deeper correction would happen.

Technical corner

In the daily chart, EUR/USD trades at 1.1582. The near-term bias is mildly bearish as the pair slips below the 55-day and 100-day Simple Moving Averages (SMAs), which flatten around 1.1766–1.17 and lose upside momentum against a still-rising 200-day SMA near 1.1670. Daily Relative Strength Index (RSI) has dropped toward 32, approaching oversold territory and reinforcing building downside pressure rather than a completed exhaustion. The Average Directional Index (ADX) turns higher from the low-20s, indicating bearish trend strength is picking up after a prior period of consolidation.

Immediate resistance stands at 1.1766, where the recent horizontal cap converges with the clustered 55- and 100-day SMAs, and a recovery above this area would be needed to ease the current downside tone, with 1.2082 as the next hurdle. On the downside, the pair is testing support at 1.1578, and a clear break below this level would open the way toward 1.1491, followed by 1.1469. A deeper slide would expose the lower support at 1.1392, where sellers could pause if RSI moves firmly into oversold territory.

(The technical analysis of this story was written with the help of an AI tool.)

Bottom line: the Dollar remains in control

For now, developments in EUR/USD appear to be driven far more by Washington than by Frankfurt.

Until the Fed’s policy path becomes clearer, or the euro area delivers a stronger cyclical upswing, rallies in the pair are likely to remain limited. At this stage, the US Dollar remains firmly in the driving seat.