EUR/USD Price Forecast: Upside remains capped by 1.1800

EUR/USD is losing momentum on Wednesday, hovering just below the 1.1700 mark as volatility across the FX space remains muted. The pair’s gentle pullback reflects a modest bounce in the US Dollar (USD), with markets still chewing over President Trump’s remarks at the World Economic Forum in Davos.

That said, the broader trade narrative between the US and the European Union remains unchanged, even if the rhetoric briefly took an unexpected turn. President Trump surprised the Davos audience by saying he was pushing for immediate negotiations to acquire Greenland, arguing that only the United States was capable of protecting what he described as its vast landmass and ice sheet.

Back to the Greenback, the US Dollar Index (DXY) has steadied after two consecutive sessions of sharp losses, finding some footing around the 98.70 area. The rebound comes despite declining US Treasury yields across the curve and a generally downbeat tone in US equity markets, highlighting just how tentative the move remains.

The Fed eases, but keeps its foot near the brake

The Federal Reserve (Fed) delivered the December rate cut that markets had fully priced in, but the real takeaway was the tone rather than the decision itself. A split vote and carefully chosen language from Chair Jerome Powell made it clear that the easing cycle is anything but automatic.

Powell repeated that inflation remains “somewhat elevated” and stressed the need for clearer evidence that the labour market is cooling in an orderly fashion. Updated projections barely budged, still pointing to just one additional 25-basis-point cut in 2026, alongside steady growth and only a modest uptick in unemployment.

During the press conference, Powell ruled out rate hikes as the base case but was equally cautious about signalling that another cut is around the corner. He also flagged tariffs introduced under former President Donald Trump as one of the factors keeping inflation sticky.

The Minutes later reinforced how finely balanced the debate remains within the Federal Open Market Committee (FOMC). With divisions still visible, confidence in further easing is fading, and a pause increasingly looks like the path of least resistance unless inflation cools more convincingly or the labour market weakens more sharply.

The ECB stays calm and patient

The European Central Bank (ECB) left rates unchanged at its December 18 meeting, striking a noticeably calmer tone. Small upward tweaks to parts of the growth and inflation outlook have effectively pushed back expectations for near-term rate cuts.

Incoming data have helped steady the mood. Euro area growth has surprised modestly to the upside, exporters have weathered US tariffs better than feared, and domestic demand has helped offset the ongoing drag from weak manufacturing activity.

Inflation dynamics remain broadly aligned with the ECB’s framework. Price pressures are hovering close to the 2% target, with services inflation doing most of the heavy lifting, a pattern policymakers expect to persist.

Updated projections still show inflation dipping below target in 2026–27 as energy prices ease, before gradually drifting back towards 2%. At the same time, officials remain alert to the risk that services inflation could stay sticky, given that wage growth is only cooling gradually.

Growth forecasts were nudged higher as well, reinforcing the sense that the economy is holding up better than many had feared. President Christine Lagarde summed it up by describing exports as “sustainable” for now, while stressing that policy decisions will remain firmly data-driven.

Markets seem to have taken the hint, pricing in just around 7 basis points of easing this year — hardly a sign of urgency.

Positioning: still supportive, but with less conviction

Speculative positioning continues to favour the Euro (EUR), though the bullish momentum is clearly starting to fade.

According to Commodity Futures Trading Commission (CFTC) data for the week ending January 13, non-commercial net long positions slipped to around 132.6K contracts, the lowest level in six weeks. Institutional players also trimmed short exposure, now sitting near 179.8K contracts.

At the same time, open interest has risen for a third consecutive week, approaching 883.7K contracts, a four-week high, suggesting broader market participation even as bullish conviction begins to thin.

What could shake things up

Near term: The upcoming US Personal Consumption Expenditures (PCE) release is unlikely to be a major market mover. Instead, attention is likely to shift towards preliminary Purchasing Managers’ Index (PMI) readings in both the US and the euro area, which should offer a clearer snapshot of underlying momentum.

Risk: A fresh rise in US Treasury yields or a more hawkish turn from the Fed could quickly put sellers back in control. In addition, a clear breach below the 200-day Simple Moving Average (SMA) would raise the odds of a deeper medium-term correction.

Tech corner

EUR/USD loses some momentum and puts its key support around 1.1700 to the test. Down from here emerges the key 200-day SMA at 1.1588 prior to the November base at 1.1468 (November 5) and the August floor at 1.1391 (August 1).

In case bulls regain control, the December top at 1.1807 (December 24) could return to the radar ahead of the 2025 ceiling at 1.1918 (September 17), all preceding the 1.2000 round level.

In addition, momentum indicators remain bullish, although they recede from recent tops: The Relative Strength Index (RSI) drops to around the 53 mark, while the Average Directional Index (ADX) near the 20 level still suggests a firm trend.

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 how far it is willing to ease, or the eurozone delivers a more convincing cyclical upswing, any further gains are likely to remain gradual and measured, rather than the start of a decisive breakout.