EUR/USD’s recovery appears to have met some minor resistance just north of 1.1900 the figure, although its broader picture keeps favouring extra advances in the short-term horizon, with the immediate target at the 1.2000 threshold.
Sellers regain the upper hand on Tuesday, briefly dragging EUR/USD back to the sub-1.1900 region for a brief period.
The pair’s pullback also comes despite the US Dollar (USD) trading on the back foot once again, with the US Dollar Index (DXY) down for the third day in a row and clocking multi-day troughs near 96.60, all amid a marked drop in US Treasury yields across the spectrum.
Fed steady, confidence rising but patience intact
The Federal Reserve kept the Fed Funds Target Range (FFTR) unchanged at 3.50% to 3.75% at its January 28 meeting, exactly as markets had expected.
That said, policymakers struck a slightly more upbeat tone on growth, while inflation was still described as somewhat elevated. Crucially, the Federal Open Market Committee (FOMC) no longer sees risks to employment as worsening. The decision passed by a 10 to 2 vote, with two members dissenting in favour of a 25 basis points cut.
Chair Jerome Powell said the current policy stance remains 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 sees a rate hike as the base case.
ECB stays put; message remains data driven
The European Central Bank (ECB) opted to sit tight, leaving all three policy rates unchanged in a unanimous decision that came as no surprise to markets.
The message was one of calm and continuity. Policymakers said inflation still looks on track to settle around the 2% target over the medium term, with nothing in the latest data forcing a rethink of the broader outlook. Wage indicators continue to point towards moderation, although services prices and pay dynamics remain firmly on the radar. The bank also continues to factor in a mild inflation undershoot in 2026, propping up the idea that policy can afford to stay patient.
Speaking after the meeting, President Christine Lagarde said risks are broadly balanced and underlined that policy remains agile and data dependent. The Governing Council discussed recent FX moves, judged them to be well within historical ranges, and reiterated that there is no exchange rate target, reinforcing the message that policy is not on a predetermined course.
Positioning still favours the Euro, but enthusiasm cools
Positioning data continue to lean in favour of the Euro (EUR), although the pace of enthusiasm appears to be easing.
According to the Commodity Futures Trading Commission (CFTC), speculative net long positions rose to around 163.4K contracts in the week ended February 3, the highest level since August 2023. At the same time, institutional players, largely hedge funds, increased their short positions to nearly 218.5K contracts for the first time since May 2023.
From a market perspective, momentum also appears to be cooling. Open interest edged down to around 910.5K contracts, hinting that participation may be starting to lose steam rather than build further.
Eyes on the US, risks tilt dollar supportive
Near term: The focus remains firmly on the US Dollar side of the equation. Markets are looking ahead to incoming US data, particularly labour market releases and inflation prints, for clearer direction.
Risks: A cautious Fed for longer should continue to lend support to the Greenback. On the charts, a decisive break below the 200 day Simple Moving Average would also raise the risk of a deeper corrective phase.
Tech corner
Further gains could put EUR/USD en route to revisit the 1.2000 yardstick prior to the 2026 ceiling at 1.2082 (January 28). A break above the latter could put a move to the May 2021 high at 1.2266 (May 25) back on the radar, ahead of the 2021 peak at 1.2349 (January 6).
In the opposite direction, the pair should face initial contention at the February base at 1.1775 (February 2). South from here come the intermediate 55-day and 100-day SMAs at 1.1725 and 1.1680, respectively, before the more relevant 200-day SMA at 1.1622. Down from here is located the November 2025 floor at 1.1468 (November 5), followed by the August 2025 valley at 1.1391 (August 1).
Momentum indicators look encouraging: the Relative Strength Index (RSI) trades comfortably above the 68 level, while the Average Directional Index (ADX) near 32 signals a robust underlying trend.
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Bottom line
For now, EUR/USD continues to be driven far more by developments in the US than by anything coming out of the euro area.
Until the Fed provides clearer guidance on its 2026 rate path, or the euro area delivers a more convincing cyclical upswing, any upside is likely to remain gradual rather than turning into a clean and decisive breakout.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the 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.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
