The EUR/USD pair started the new year with a soft tone, falling for a second consecutive week to settle around 1.1640, its lowest in a month. The US Dollar (USD) stands victorious across the FX board, backed by geopolitical uncertainty and pretty solid United States (US) employment data.
Geopolitical tensions shape financial markets at the beginning of 2026
The world woke up on Saturday knowing that US President Donald Trump conducted a surgical military operation in Venezuela, capturing now former President Nicolás Maduro and his wife, Cilia Flores, and taking them to the US to face narco-terrorism charges. Delcy Rodriguez, Maduro’s Vice-President, now leads Venezuela, and despite some initial outrage against Trump, she quickly changed her speech and pledged to collaborate with the US.
Trump did not lie about his reasons to take over the troubled country: In a press conference that followed the initial events, Trump said the US would take control of Venezuelan oil and threatened to take more action should the current government defy him. He also said that the US will “run” the country. The word “transition” was mentioned in reference to the country’s future government, but no details were provided. The word “democracy” was never mentioned.
As the week went by, tensions eased, and the conflict moved to the background, but it’s far from resolved. Still, it’s worth mentioning that Venezuela was providing oil to Russia and China, and Trump’s decision to take over Venezuela is clearly linked to putting pressure on his two rivals.
Across the pond, Russia conducted a massive missile strike on Ukraine early on Friday, in the west of the country near the border with Europe. The strike came a few days after Ukraine’s European allies agreed to provide key elements of postwar security guarantees in the event of a ceasefire with Russia. The attack was clearly a challenge by Russian President Vladimir Putin to his Western rivals. Putin wants to show the world that he does not care about any sanctions, even those that limit oil provisions to Russia.
Other than that, US President Trump opened a new front of tension: He wants to annex Greenland, an autonomous part of Denmark. Trump claims that he needs the independent territory located in the Arctic “from the standpoint of national security.” Indeed, Greenland is physically closer to America than to Europe, but Trump’s claims are completely out of context. Throughout the week, fears of military action in the territory receded, as Trump claimed he wanted to buy the land.
European stability continues
News coming from Europe has no impact on the Euro (EUR). Seems logical given that the Eurozone has reached a delicate stability, where growth continues, inflation remains at tolerable levels and employment is far from a concern.
Eurostat reported that the Euro area seasonally adjusted unemployment rate was 6.3% in November, down from 6.4% in October 2025 and up from 6.2% in November 2024. The EU unemployment rate was 6.0% in November 2025, stable compared with October 2025 and up from 5.8% in November 2024.
Additionally, the Hamburg Commercial Bank (HCOB) released the final estimates of the December Services and Composite Purchasing Managers’ Indexes (PMIs) for the Eurozone. “The euro area economy registered a twelfth successive month-on-month rise in private sector business activity at the end of the year,” according to the latest survey data. The Composite PMI printed at 51.5, easing from the 52.8 posted in November. Services output also shrank to 52.4 from the previous 53.6, both indexes at three-month lows.
On the inflation front, Germany published the preliminary estimate of the December Harmonized Index of Consumer Prices (HICP), which rose 2% on a yearly basis, down from the 2.6% posted in November and below the 2.2% anticipated by market players. On a monthly basis, the HICP was up 0.2%, half the 0.4% expected. The Eurozone HICP in the same period rose by 2% on a yearly basis, as expected. Finally, the monthly HICP rose 0.2% after decreasing 0.2% in November.
There were some tepid figures from Germany, as the country reported that Retail Sales were down 0.6% in November, while Industrial Production was up a modest 0.8% in the same month.
When it comes to the European Central Bank (ECB), Vice President Luis de Guindos said in an interview with Bloomberg that the current level of interest rates is adequate, noting the central bank is at its inflation target, but added that uncertainty remains very high. His words represent to the dot the ECB’s current monetary policy stance: policymakers are done with rate moves at the time, but “remain vigilant.”
United States employment and growth
The US macroeconomic calendar was packed with relevant data, most of it indicating economic progress. The Institute for Supply Management (ISM) reported the December Manufacturing Purchasing Managers’ Indexes (PMIs). Manufacturing output contracted in the month, with the index declining to 47.9 from 48.2 in November. This print came in worse than the market expectation of 48.3. However, the Employment Index improved slightly to 44.9 from 44 in November, while the Prices Paid Index, the inflation component, remained unchanged at 58.5. The services index, on the contrary, improved to 54.4 from 52.6 in November. The employment sub-component also rose, to 52 from 48.9, while the Price Paid Index eased to 64.3 from 65.4.
The US also reported that the trade deficit contracted sharply to $59.1 billion in October from $78.3 billion, a result of Trump’s policies.
Employment figures were pretty encouraging: the ADP Employment Change report showed that the private sector added 41K new jobs in December, slightly worse than the 47K anticipated but better than the November revised figure of -29K. Also, the Job Openings and Labor Turnover Survey (JOLTS) report showed that the number of job openings on the last business day of November stood at 7.146 million, down from the revised 7.449 million openings recorded in October. US-based employers announced 35,553 job cuts in December, down 50% from the 71,321 job cuts announced in November, according to the Challenger Job Cuts report. The report also indicated that December’s total is the lowest monthly total since 25,885 cuts were announced in July 2024.
Finally, the US released the December Nonfarm Payrolls (NFP) report on Friday. The country added 50K new jobs in the month, missing the expected 60k, while the Unemployment Rate contracted to 4.4%, better than the 4.5% anticipated. The November headline was revised to 56K, down from the previously reported 64K. The news put the USD under near-term pressure, as the report was not as encouraging as previous releases suggested. Still, it also fell short of affecting the current Federal Reserve (Fed) approach to monetary policy.
The Fed delivered a 25 basis points (bps) interest rate cut in December, as expected, and hinted at one more cut in 2026, short of what the market wants, but in line with policymakers’ cautious stance. Officials’ main concern is the employment situation, and these figures align with such concerns.
Market participants believe the Fed could deliver at least two interest rate cuts in 2026, as Chairman Jerome Powell’s mandate is due to end in May. For sure, President Trump will replace him with someone aligned with his idea of more aggressive rate cuts. But it’s a wait-and-see there, with no action expected from the Fed in the first meeting of the year.
What’s next in the docket?
In the upcoming days, the focus will be on US inflation data. The country will publish the December Consumer Price Index (CPI) figures on Tuesday and the Producer Price Index (PPI) for October and November on Wednesday. November Retail Sales will be out on the same day. The potential impact on future Fed decisions will determine the US Dollar’s direction.
Other than that, the focus will remain on geopolitical conflicts.
EUR/USD technical outlook
From a technical point of view and according to the daily chart, EUR/USD is bearish, and it has room to extend its slump. The 20-day Simple Moving Average (SMA) turns lower while remaining above the 100- and 200-day SMAs, signaling waning near-term momentum. Price holds beneath the 20- and 100-day SMAs at 1.1733 and 1.1666, while the rising 200-day SMA at 1.1571 offers support. The same chart shows that the Momentum indicator slips below its midline, maintaining its strong downward strength, while the Relative Strength Index (RSI) indicator also heads south at 36, supporting lower lows ahead. A close back above the 100-day SMA at 1.1666 could ease the downside and expose the 20-day SMA at 1.1733, while failure to reclaim that barrier would leave the pair vulnerable to a test of the rising 200-day SMA at 1.1571.
Wider time frames are also hinting at a bearish extension. In the weekly chart, the EUR/USD pair trades below a 20-week SMA that has flattened near 1.1665, with spot holding just below it and immediate upside capped. The 100- and 200-week SMAs continue to rise at 1.1085 and 1.0856, too far below the current level to be relevant in the upcoming days. Finally, the Momentum indicator turned lower but remains within neutral levels, while the RSI indicator aims lower at around 52.
Should the pair pierce the 1.1600 threshold, the next likely bearish target and relevant support comes at the 1.1470 area, a long-term static turning point. Bears will retain control as long as the pair remains below the 1.1740-50 price zone.
(The technical analysis of this story was written with the help of an AI tool)
