EUR/USD Price Forecast: The loss of 1.1740 could spark a deeper decline
- EUR/USD keeps the choppy trade unchanged so far this week.
- The US Dollar gathers fresh steam and approaches monthly highs.
- The ECB’s Lagarde delivered a cautious message earlier on Thursday.
EUR/USD remains unable to gather serious traction, leaving the door open to further weakness down the road, where it could put its critical 200-day SMA to the test in case of a convincing breach below the monthly floor near 1.1740.
EUR/USD quickly fades Wednesday’s bull run and refocuses on the downside, trading closer to the provisional 55-day SMA around 1.1770, always amid the multi-day erratic performance.
Meanwhile, the US Dollar (USD) appears reinvigorated, setting aside Wednesday’s retracement and retargeting the area of monthly peaks around the 98.00 region when tracked by the US Dollar Index (DXY).
Fed: comfortable, not committed
The Federal Reserve (Fed) left the Fed Funds Target Range (FFTR) unchanged at 3.50% to 3.75% in January. No surprise there. Markets were fully priced for a hold.
What shifted was the tone. Policymakers sounded more relaxed about the backdrop. Growth is holding up better than feared, and the Federal Open Market Committee (FOMC) no longer sees employment risks as deteriorating. Inflation is still somewhat elevated, but the urgency has faded.
The 10 to 2 vote, with two members favouring a 25 basis points cut, is a reminder that debate remains alive.
At the press conference, Chair Jerome Powell described policy as being in a good place, with decisions strictly 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: steady and agile
The European Central Bank (ECB) also left rates unchanged in a unanimous and widely expected move.
The message was disciplined: inflation is still seen returning to the 2% target over the medium term. Wage pressures are stabilising, services inflation is being watched closely and a modest dip in prices is still expected in 2026.
Christine Lagarde sounded confident but cautious earlier on Thursday, insisting inflation is still on track to return to 2% in the medium term, with food price pressures easing gradually into 2026. She flagged support from solid wage growth, a resilient labour market and stronger investment, while stressing that the ECB monitors the Euro (EUR) but does not target it. In addition, she flagged no signs yet of AI driven job losses.
The message was clear: the ECB is in a good place, but policy stays fully data dependent and ready to adjust.
Euro positioning: a genuine tug of war
Speculative net longs in the Euro (EUR) have climbed to their highest since 2020, while short positions have also risen sharply. When both sides build exposure at the same time, it signals conviction and tension rather than a one-way trade.
Additionally, open interest remains elevated. This is not a thin move. It is a proper battle.
Net positioning still favours the European currency, but the rise in opposing shorts makes the upside more fragile and highly sensitive to incoming macro data.
What to watch
Near term: the US Dollar is still setting the tone, especially amid renewed trade tensions and geopolitical noise. The relative silence from the ECB is doing little to shift that balance.
Risks: if the Fed stays cautious with solid US data behind it, the US Dollar keeps a natural floor. A decisive break below the 200 day Simple Moving Average (SMA) would alter the technical picture and raise the risk of a deeper correction in spot.
Technical landscape
In the daily chart, EUR/USD trades at 1.1786. The pair holds in a sideways posture above the 55- and 100-day Simple Moving Averages (SMAs) clustered in the 1.1770-1.1690 range, while the 200-day SMA lags below around 1.1660, keeping a mild bullish tilt intact. Price action above this moving average group suggests buyers defend the medium-term trend, although the flattening 55- and 100-day SMAs hint at reduced directional strength. The Relative Strength Index (RSI) at 47 stays close to its midline, in line with range-bound momentum, while the declining Average Directional Index (ADX) below 20 signals a fading trend environment and reinforces a neutral-with-upside-bias stance.
Immediate support emerges at 1.1742, where a horizontal level converges with the nearby moving averages, and a break below there would expose 1.1578 as the next downside level, ahead of 1.1491 and 1.1469. On the topside, initial resistance stands far above at 1.2082, followed by 1.2266 and then 1.2350, levels that cap the broader range and define the area that bulls would need to reclaim to revive a stronger uptrend.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: Dollar first
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 is still Dollar first, euro second.
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.
