EUR/USD Price Forecast – Pair Fights to Hold 1.18 as Dollar Regains Control

EUR/USD – Price, policy and the fight around 1.18

EUR/USD – Trading near 1.179 with the 1.1775–1.1800 band as the current battlefield

EUR/USD is sitting around 1.179 after failing to hold the breakout above 1.2000 and pulling back from the four-year high at 1.2085. Price has already tested a two-week low near 1.1777, with intraday support clustered around 1.1775–1.1780 and buyers trying to defend that band for a second straight session. The pair is still holding above the 38.2% retracement of the January leg near 1.178 and remains comfortably above the 200-day area down at 1.1600, but momentum has shifted from a clean uptrend to a corrective phase that can easily extend if the current floor at 1.1775 gives way.

EUR/USD – DXY near 97.8, Fed still hawkish and why the dollar side of the pair matters

On the dollar side, the USD is not acting like a currency that is about to lose its yield advantage. The dollar index is trading around 97.7–97.8 after pulling back from 99.8 but still sits above the 61.8% retracement at 97.62, with support at 97.22 and deeper backing at 96.34. The 50-EMA is flat around 97.7 and the 200-EMA near 98.3 is capping the topside, while the RSI grinding toward 60 shows buying pressure rebuilding rather than fading. That mix—DXY consolidating just under 98 with a clear support staircase—keeps the dollar bid and limits how far EUR/USD can bounce as long as the Fed refuses to sound dovish.

Fed governor Lisa Cook has made it explicit: with inflation still a concern, she does not back another rate cut without clearer disinflation. At the same time, the nomination of Kevin Warsh, who favours a smaller Fed balance sheet and a slower, more cautious cutting cycle, signals a central bank that will not flood the system with liquidity. The dollar index holding near 97.8 in that environment is exactly what you expect: not a runaway surge, but a currency that is rewarded every time the market overprices cuts and then has to reverse.

EUR/USD – Euro at 1.18 as the ECB sits on 2.15% while Eurozone data softens

On the euro side, EUR/USD is reacting to a central bank that insists its current stance is “in a good place” even as inflation keeps slipping. The ECB is keeping the main refinancing rate at 2.15% and the deposit rate at 2.00%, with no cut expected at the current meeting, but the backdrop has shifted. Headline euro-area inflation dropped to 1.7% year-on-year in January from 1.9% in December and now sits clearly below the 2% target. Retail sales for December fell 0.5% month-on-month against expectations of a 0.2% decline, while the prior month was revised down to a marginal 0.1% gain instead of 0.2%. That combination—weak consumption, softer prices and an exchange rate that was above 1.20 only days ago—pushes the Governing Council closer to a debate on whether a cut later this year is needed.

The only real positive surprise on the euro side is German industry. Factory orders jumped 7.8% in December versus a forecast of a 2.2% contraction, and November was revised higher to 5.7%. That shows there is still life in the core manufacturing belt, but one strong orders print does not offset a consumption shock or a disinflation trend. With EUR/USD already having tested above 1.2000 and then sliding back toward 1.1800, the currency’s previous strength now becomes a problem: a strong euro combined with cheap Chinese exports and 1.7% inflation reinforces the argument for a more dovish ECB tone.

EUR/USD – US data: ADP at 22K, ISM services at 53.8 and labour signals that favour the dollar for now

Across the Atlantic, the USD is getting support from a mixed but still service-driven US economy. Private payrolls from ADP rose only 22,000 in January versus expectations of 48,000 and a revised 37,000 prior reading, showing that hiring momentum has cooled. On its own, that would pressure the dollar. But the services side is not collapsing. The ISM Services PMI printed 53.8 for January, matching the previous month and beating the 53.5 consensus. The prices-paid component climbed to 66.6 from 65.1, confirming inflation pressures inside the sector, while the Employment Index slipped to 50.3 from 51.7, signalling slower but not disastrous hiring.

Initial jobless claims jumped to 231,000 from 209,000 and above the 212,000 consensus, and JOLTS job openings are projected to rise modestly to about 7.2 million from 7.146 million. None of this points to a booming US cycle, but it does not justify aggressive cuts either. The net result is simple: the Fed can keep rates high and talk tough, which anchors the USD side of EUR/USD even when individual data points look soft.

EUR/USD – Eurozone retail sales, German orders and how the macro mix feeds the 1.1775–1.1900 range

The macro picture for EUR/USD is a tug-of-war between weak household demand in the Eurozone and a still-resilient US services economy. A 0.5% drop in Eurozone retail sales, combined with earlier signs that domestic demand is not firing, makes it hard to argue for a sustainably stronger euro while the ECB funds rate sits at 2.15% and inflation at 1.7%. German factory orders at +7.8% and +5.7% over the last two months show there is still external demand for euro-area goods, but the currency pair trades on rate expectations, not just exports. With DXY pressing 97.8 and the ECB unlikely to offer anything more than cautious language, the macro mix argues for EUR/USD to stay capped under 1.1900 unless Lagarde leans clearly less dovish than the market expects.

At the same time, the US side is not strong enough to justify a collapse. An ADP print at 22,000, an employment sub-index at 50.3 and jobless claims at 231,000 are consistent with a slowing labour market. That prevents a runaway dollar rally and helps explain why EUR/USD is holding the 1.1775 zone rather than slicing straight through to 1.16. The pair is effectively trading a relative slowdown: Europe with disinflation and weak retail vs the US with moderate services strength and sticky prices.

EUR/USD – Technical structure: 1.1775 first line of defence, 1.1728 and 1.1670 as the real test

Technically, EUR/USD is pinned near a key band that runs from 1.1775 to roughly 1.1800. This zone combines recent lows from February 2 and 3 with the 38.2% retracement of the move up from the January base. On the downside, a clean break below 1.1775 exposes the January 23 low at 1.1728 and then the January 22 low at 1.1670. Those are the levels where dip-buyers previously stepped in and where a lot of stop-loss orders are now likely to sit.

On the topside, immediate resistance stands around 1.1840, which was Wednesday’s high, and then the prior support band near 1.1900 that capped several sessions in late January. Above 1.1900, the next serious target is the psychological 1.2000 level, followed by the recent four-year high at 1.2085. The pair is trading close to the 50-period EMA just above 1.1800 on the short-term charts, while the 200-period EMA near 1.1700 lines up with the deeper support area. The MACD histogram is almost flat, signalling neutral momentum, and the RSI hovering near 40 tilts the bias slightly to the bearish side without screaming oversold. That combination fits a market that is leaking lower, not collapsing.

EUR/USD – Short-term trading map between 1.1760 and 1.1870

Short-term, EUR/USD is boxed inside a tight lattice of intraday levels that traders are already using. On the downside, tactical buyers are watching 1.1766 and 1.1760 as micro-supports below the main 1.1775 cluster, with a final line near 1.1672–1.1670 where the January lows sit. On the upside, 1.1810, 1.1840 and 1.1872 stack as step-by-step resistance layers. Fading spikes into 1.1840–1.1870 while the dollar index holds above 97.6 makes sense in this configuration, especially if the ECB press conference leans even slightly more dovish than the market hopes.

The heat map of major currencies reinforces this bias. The euro is marginally weaker versus the dollar—around -0.09%—and is underperforming versus the Swiss franc, while it still gains against the pound. That pattern is exactly what you expect when EUR/USD trades heavy but not in free-fall: euro softness vs safe-haven currencies and a stronger dollar, offset by relative strength vs a currency facing its own central-bank headache.

EUR/USD – ECB tone, Fed path and final stance on the pair

The next decisive catalyst for EUR/USD sits with the ECB’s communication. Policy rates at 2.15% and 2.00% are already priced; the market cares about whether Lagarde signals any openness to a cut later in 2026 now that inflation is at 1.7% and retail sales are contracting. A cautious, data-dependent message that acknowledges disinflation without pre-committing would probably keep EUR/USD pinned near 1.18 and leave the heavy lifting to US data and the Fed. A more clearly dovish tone, combined with weak European demand, would validate a move down toward 1.1728 and potentially 1.1670 if DXY breaks back above 98.0.

On the US side, as long as DXY holds the 97.62 Fibonacci level and Fed officials like Lisa Cook stress inflation risks, the dollar will keep a structural advantage. ADP at 22,000 and jobless claims at 231,000 are not weak enough to force Powell’s hand into rapid cuts, especially with ISM services at 53.8 and prices-paid at 66.6. That backdrop argues against chasing euro strength on any shallow bounce.

Putting all of this together, EUR/USD here around 1.179 is not attractive as a long-term buy. The macro and technical mix point to a mildly bearish bias with better risk-reward on the short side, selling rallies into the 1.1840–1.1900 region and targeting a retest of 1.1728 first and then 1.1670 while the dollar index trades around 97.8 and the ECB remains more cautious than the Fed. In other words: stance is Sell on strength, not neutral, as long as 1.1900–1.2000 caps the topside and the ECB does not flip hawkish against a Fed that is still signalling patience.

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