EUR/USD Price Forecast: Pair Hovers Near 1.20 As Dollar Weakens Before Fed Decision

EUR/USD Price: Dollar Weakness Drives The Pair Back Toward 1.20

EUR/USD: Structure Built On Higher Lows Between 1.1866 And The 1.20–1.21 Band

EUR/USD has been grinding higher since late 2025, building a clean sequence of higher lows off the 1.1850 base. The pair first stalled in the 1.18661–1.18918 supply zone, a band that rejected price several times and formed the top of a medium-term range. That ceiling has now been tested and partially breached, with spot oscillating between roughly 1.1960 support and the 1.2040–1.2050 recent high. The move from 1.1850 into the 1.18661–1.18918 zone is fully aligned with broad US dollar weakness and a repricing of policy risk in Washington. The current pullback from the 1.20 handle into 1.198–1.199 is a retest, not a trend break. EUR/USD still trades above the rising trendline from 1.1850, above the 50% retracement at 1.1966 and the 61.8% at 1.1939, with 1.1900 as the key invalidation level for the bullish structure.

US Dollar: DXY Break Below 96.20 Turns Into A Structural Tailwind For EUR/USD

The USD leg lower is being driven by FX decision-makers, not by a collapse in US assets. The dollar index is sitting around 96.24 after taking out last year’s floor near 96.20, opening space for roughly another 3% downside if momentum persists. Large asset managers are lifting hedge ratios on US exposure, while hedge funds and CTAs add to short-dollar positions on range breakouts. This is flowing straight into EUR/USD via systematic selling of the dollar across the board. With the Fed funds rate still anchored in a 3.50%–3.75% band, the message from price is clear: policy risk and dollar-policy uncertainty matter more for now than the residual yield advantage.

Trump, Dollar Policy Noise And The Return Of The ‘Sell America’ Trade In EUR/USD

Political signals from Washington are amplifying pressure on USD. Comments from President Trump showing no concern about a weaker dollar and hinting at tolerance for a softer currency to support exports are consistent with past Republican preferences. At the same time, speculation that US authorities could participate in USD/JPY intervention raises the question of whether the administration is comfortable with broader dollar depreciation. That mix revives the “Sell America” narrative: global investors trim dollar-denominated assets and shift into alternatives, including the euro. For EUR/USD, that means the burden of proof is now on the dollar. If the Fed cannot generate a sustained USD bounce even with steady rates, the market will keep rewarding euro longs on dips.

Euro Side Of EUR/USD: Resilient Currency Benefiting From USD Missteps

The EUR is not exploding higher on its own fundamentals, but it is clearly resilient. Over 2025, euro-denominated portfolios outperformed USD on a total-return basis, and markets now see the worst eurozone macro risks as largely absorbed. The European Central Bank is perceived as being in a more stable phase, moving away from emergency posture and into calibration. That backdrop allows the euro to absorb incoming flows when the dollar is sold. However, the latest push in EUR/USD toward and above 1.18661–1.18918, and then toward 1.20, is still primarily driven by USD weakness. This is visible in the rate space: while EUR/USD pushed higher, short-dated euro swap rates moved lower, reflecting concern in Frankfurt that an over-strong euro could drag inflation below target.

ECB Cut Repricing: July Easing Odds Rise And Cap The Euro’s Upside Pace

Rate markets have increased the implied probability of an ECB cut around July from roughly 15% to about 25% after comments from Governing Council members that a stronger EUR could justify earlier easing. That shift cooled euro momentum and pulled EUR/USD back from the 1.20 zone into the 1.198–1.199 region. This is not a policy shock; it is a signal that the ECB will not let the currency run unchecked. A 25% cut probability is still consistent with a mildly dovish central bank, not an aggressive one. For EUR/USD this means there is still upside as long as the Fed and the White House keep the dollar under pressure, but every 200–300 pips higher will increase the chance of verbal or policy pushback from the ECB, which naturally moderates the speed of the move.

US Macro Data: Weak Confidence, Slowing Jobs And A Dollar That Holds Only On Event Risk

On the macro side, the USD is not getting strong support from domestic data. US consumer confidence has slid to 84.5, the lowest level in more than eleven and a half years, signalling growing strain on households. ADP employment growth has slowed for a third straight week, pointing to cooling momentum in private-sector hiring. Despite that, the Fed is holding the 3.50%–3.75% funds corridor and signalling patience. The result is a strange balance: fundamentals argue for a softer dollar, but the upcoming Fed decision and the risk of intraday volatility keep traders from fully pressing shorts. EUR/USD pausing near 1.20 reflects that positioning risk, not renewed faith in the dollar’s macro story.

EUR/USD Technical Map: Pullback Within An Uptrend, Not A Trend Reversal

On the technical side, EUR/USD still looks like a bullish trend pausing, not reversing. The 2-hour chart shows price holding around 1.1960 after rejecting the top of the 1.2040–1.2050 band. The dip has respected classic retracement levels: the 50% retrace at 1.1966 is acting as first support, with the 61.8% at 1.1939 as a deeper cushion. Below that, the rising trendline from 1.1850 and the 1.1900 psychological line mark the boundary between continuation and breakdown. Candlestick action is consistent with profit-taking – small real bodies, limited follow-through – rather than forced liquidation. RSI near 60 fits a consolidation after a strong leg higher, not the end of a trend.

Critical EUR/USD Levels: Where Bulls Defend And Bears Regain Control

The key levels in EUR/USD are well-defined. On the downside, the first zone to watch is 1.1966 (50% retracement) followed by 1.1939 (61.8% retracement) and the broader 1.1935–1.1940 support cluster. A decisive break below 1.1900 would put the rising trendline under pressure and pull focus back toward the 1.1850 base, signalling that the bullish structure is failing. On the topside, regaining 1.1995 is the first confirmation that buyers have re-asserted control. Above that, the 1.2030–1.2080 band is the next resistance cluster, where previous highs and short-term targets converge. As long as the dollar index stays below the broken 96.20 floor, a medium-term run toward 1.23–1.24 remains on the table, even if headline risk keeps the path noisy.

Fed Decision, Trump Risk And The Next Impulse For EUR/USD

The next major impulse for EUR/USD will come from the Fed decision and messaging. Markets expect policy to stay in the 3.50%–3.75% range, so the focus is entirely on the tone of the statement and the press conference. If the Fed acknowledges weaker confidence and slower job growth, leans into data-dependence and does not aggressively push back on easing expectations for later in 2026, the dollar’s downside momentum should resume and EUR/USD can quickly reclaim 1.20, re-test 1.2030–1.2080 and build a higher base. If Powell delivers a more hawkish message, you can see a USD short squeeze that drags EUR/USD back toward 1.1935–1.1900. Even in that case, any fresh comments from Trump signalling comfort with a weaker dollar will likely cap the durability of a USD rally.

Strategic View On EUR/USD: Bias Bullish, Buy Dips Above 1.19

Combining the technical picture and the macro backdrop, EUR/USD still favours a bullish stance. The dollar index breaking under 96.20, explicit political tolerance for a softer USD, eurozone risk premium stabilising, and the pair holding above the 1.1850–1.1900 support zone all point in the same direction. The trend from 1.1850 to the 1.20 area has been driven by structural flows and hedging, not a one-day squeeze. The strategic view is straightforward: EUR/USD is a buy on dips while it holds above 1.19, with tactical entries in the 1.1966–1.1940 area and upside targets at 1.2030, 1.2080, and, on a multi-week horizon, potentially 1.23–1.24 if the dollar leg lower extends. Only a sustained break below 1.1900 would move the stance from buy to neutral. Based on the current data, the pair is bullish and treated as a buy, not a hold or a sell.

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