EUR/USD Price Forecast: Dollar Shock at 1.20 Turns Focus to 1.18–1.16 Support

EUR/USD PRICE: DOLLAR COMEBACK FLIPS THE STORY AT 1.20 AND PUTS 1.18–1.16 BACK IN PLAY

Macro shock and a clean EUR/USD reversal at four-year highs

The aggressive repricing after Kevin Warsh was tapped to lead the Fed has hit EUR/USD exactly where the pair was most vulnerable: at stretched valuations and heavy consensus on a weaker dollar. The cross had just broken to fresh four-year highs above 1.20, on the back of a 4% rally from the January low around 1.1598, while the Dollar Index was sitting near 97.4 and US indices like the S&P 500 at 6,974.40 and the Nasdaq at 23,612.61 were still buoyed by AI and liquidity trades. Once markets shifted to a more hawkish Fed path, the whole “dollar decline is dead” narrative started to crack and EUR/USD printed a classic bull-trap: new highs above 1.20, followed by a sharp rejection and a bearish monthly reversal. That is not noise; that is positioning being forced to adjust at a structurally important level.

How the EUR/USD rally stretched from 1.1598 to the 1.1917–1.2020 ceiling

From a pure price-action standpoint, the latest leg higher in EUR/USD is textbook late-cycle behaviour. The pair based out at 1.1598 in January, right on top of confluent uptrend support highlighted by multiple technical desks. From there it rallied more than 4.3%, registering an outside-weekly reversal off the lows and forcing shorts to cover. That impulse carried the cross straight into a dense resistance cluster between 1.1917 and 1.2020. That band is defined by the 2025 swing high, the 100% extension of the 2022 advance and roughly the 38.2% retracement of the 2008–2022 down-leg. In other words, this is not a random line on the chart; it’s a multi-cycle pivot where long-term sellers have every incentive to lean in, especially when the macro backdrop suddenly flips in favour of the dollar. The fact that the market overshot slightly above 1.20 and then closed back under it at month-end tells you the breakout was used to distribute euros, not to build fresh structural longs.

Short-term structure: 1.1930 caps the bounce while 1.1800 becomes the first real test

On the intraday tape, EUR/USD is showing exactly the kind of behaviour you expect after a failed breakout. Economies.com highlights a short-term resistance shelf around 1.1930, and the market has started to respect that area as a ceiling for corrective rebounds rather than as a base for another impulsive leg higher. At the same time, their scenario points to a slide back toward 1.1800 as the default path if the pair cannot sustain trade above that 1.1930 region. That aligns with the broader picture: after a multi-week rally, the first support normally tested in a reversal is the previous breakout region. Here that sits in the 1.18 neighbourhood, which also coincides with the lower end of the immediate daily range highlighted by several desks. Put simply, as long as EUR/USD stays capped below roughly 1.1930–1.1950 on closing basis, every intraday bounce looks more like a chance to sell into strength than the start of a fresh bull leg.

Key technical map for EUR/USD: 1.1917–1.2020 resistance vs 1.1746, 1.1598 and 1.1497 support

Zooming out, the technical roadmap on EUR/USD is very clear and very binary. On the upside, the 1.1917–1.2020 band is the key barrier: it combines the 2025 high, the 100% extension of the 2022 move and a major Fibonacci retracement of the long-term 2008 downtrend. Above that, secondary resistance levels sit at 1.2218 (the 2021 high-week close) and 1.2350 (the 2021 swing high), but those do not come into play unless the cross can close decisively above 1.2020 and hold it. On the downside, the first real weekly support now lies at 1.1746/1.1775, which lines up with the objective yearly open and key 2025 weekly closes. Below that, the medium-term bullish line in the sand is still the 1.1598 area, which marks the January low close and the point where the last impulsive rally started. A sustained weekly close below 1.1598 would signal that the uptrend from 2025 has likely topped and that a deeper correction toward 1.1497 and then 1.1394 is underway. As long as EUR/USD trades between 1.1746 and 1.2020, the pair is essentially in a high-stakes compression between major resistance and still-intact support.

Warsh nomination, DXY at 97+, and why that matters for both EUR and USD legs

The catalyst for this reversal setup is straightforward. Kevin Warsh is viewed as a hawk: more sensitive to inflation risk, more sceptical of prolonged balance-sheet expansion and far less tolerant of policies that look like open-ended liquidity support. Once his name was put forward to replace Powell, markets rapidly repriced the Fed path toward fewer rate cuts, a higher terminal rate and a more disciplined stance on the balance sheet. That immediately pushed US yields and the dollar higher, with the Dollar Index back above 97.3–97.4. For EUR/USD, that means both sides of the pair are moving: the euro is running into multi-year resistance just as the dollar regains its safe-haven and yield-differential appeal. Add in the broad risk-off episode that hammered gold from $5,608 down toward $4,400 and silver from $120+ to lows in the low $70s, and you get a macro mix where investors are much more selective about carry trades and much less willing to short the dollar blindly at multi-year lows.

Sentiment, positioning and why the “death of the dollar” narrative is dangerous at 1.20

Emotionally, the timing of the turn in EUR/USD is telling. The break above 1.20 came exactly when commentary about a structural dollar collapse was loudest. Equity markets were still trading near record highs, crypto had just suffered a brutal washout, and gold had gone parabolic before crashing. Traders looking for a “clean” anti-dollar play gravitated toward the euro because the trend looked linear and the macro story—Fed cuts, soft US data, political noise—seemed to validate it. The problem is that trends do not fail when nobody believes in them; they fail when everyone does. The bearish monthly reversal in EUR/USD at four-year highs, immediately after a 4% run from 1.1598, is exactly the pattern you expect when heavy long positioning meets a fresh macro shock. From here, any attempt to revive the “dollar is finished” narrative while price is trapped below 1.1917–1.2020 is a dangerous assumption rather than a data-backed view.

Event risk cluster: ECB, NFP and how they can unlock the next leg in EUR/USD

The next few sessions are loaded with catalysts that can decide whether EUR/USD breaks higher or rolls over. On the European side, the ECB meeting will be scrutinised for any hint that officials are uncomfortable with euro strength around 1.20, particularly after a sharp tightening in global financial conditions driven by the Warsh nomination and the metals crash. If Lagarde leans dovish, even subtly, that undercuts the euro leg of the pair right at resistance. On the US side, ISM data have already shown the dollar getting support from stronger-than-expected prints, and the upcoming Non-Farm Payrolls report will be crucial for validating the market’s shift to a more hawkish Fed path. A strong labour print and resilient wage growth would reinforce the idea that the Fed cannot ease as aggressively as previously priced, keeping the dollar bid and leaving EUR/USD vulnerable to a deeper retracement toward 1.1746 and 1.1598. Weak data would do the opposite and could give bulls one last shot at retesting the 1.1917–1.2020 ceiling.

Trading stance on EUR/USD: bias, risk zones and buy/sell/hold verdict

Putting it all together, the balance of evidence now favours a cautious, defensive stance on EUR/USD at current levels. The pair has just rejected a multi-year resistance band at 1.1917–1.2020, printed a clear bearish monthly reversal after briefly breaking 1.20, and is now trading in an environment where the Fed outlook has turned more hawkish and the Dollar Index sits firmly above 97. At the same time, immediate support at 1.1746 and medium-term support at 1.1598 are not yet broken, so this is not a confirmed long-term trend reversal—yet. In that framework, the cleanest interpretation is that rallies toward 1.1917–1.1930 are sell zones, not breakout opportunities, with 1.1800 then 1.1746 and 1.1598 as progressively more important downside targets. With that technical map and macro backdrop, the verdict on EUR/USD here is bearish / sell-the-rally bias, not buy-and-forget. As long as the pair trades below the 1.1917–1.2020 cap, the burden of proof is on the bulls, and the price action is telling you to respect the downside risk back toward the mid-1.17s and potentially the 1.16 handle if US data and Fed expectations keep moving in the dollar’s favour.

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