By Antonio Di Giacomo, Senior Market Analyst at XS.com
The EUR/USD pair continues to show clear bearish pressure in the markets after breaking below the 1.1600 level. However, it has since recovered slightly, making it a relevant technical reference for traders. This move has been driven by a combination of macroeconomic factors and expectations surrounding global monetary policy. The strength of the U.S. dollar has dominated recent sessions, supported by U.S. economic data that have surprised to the upside and by a rebound in Treasury yields, which has widened the spread versus European yields and deepened the
euro’s weakness.
The dollar’s resilience is also reflected in recent price action in the foreign exchange market. EUR/USD has hovered around the 1.1610 area, with an intraday range of 1.1593-1.1623, suggesting that selling pressure remains in the short term. At the same time, the U.S. Dollar Index has climbed to multi-week highs, supported by the perception that the U.S. economy continues to outperform other developed economies and by expectations of a still cautious Federal Reserve.
Although the Federal Reserve cut interest rates in December, Jerome Powell’s message has been clearly cautious. The Fed Chair has stressed that there is no urgency to continue with aggressive cuts, emphasizing that inflation still requires close monitoring and that future decisions will depend strictly on incoming data. Current market projections point to only one additional cut in 2026, a scenario that has reduced expectations of deeper monetary easing and has helped sustain dollar strength.
Recent U.S. economic data support this cautious stance. Indicators of activity, consumption, and the labor market continue to show resilience, reinforcing the idea that the economy can sustain relatively high interest rates for longer. This environment keeps dollar-denominated assets attractive and makes it difficult for the euro to find a solid catalyst to reverse its short-term bearish trend.
In contrast, the European Central Bank maintains a patient stance, but within a more balanced context than feared months ago. Inflation in the euro area is approaching the target, growth has shown some stability, and the export sector continues to support activity. As a result, the market has begun to price in the expectation that rate cuts in Europe will be moderate and gradual, which offers some support to the euro, though it remains insufficient to change the broader trend.
The political factor adds volatility to the dollar’s behavior. Tensions surrounding Powell’s position and speculation about the Federal Reserve’s future direction have generated episodes of market nervousness. At times, these concerns have favored safe-haven assets such as gold, triggering occasional pullbacks in the dollar. So far, they have not been enough to undermine its structural strength against major currencies.
From a futures market perspective, speculative positioning is beginning to show interesting signals for the euro. There has been a gradual increase in long positions and greater participation from investors betting on a potential technical rebound or stabilization in the exchange rate. This suggests that part of the market is starting to consider that the euro may be approaching attractive value zones if expectations regarding U.S. monetary policy shift.
Looking ahead, the evolution of EUR/USD will remain closely tied to central bank expectations and the flow of macroeconomic data. Any negative surprise in the U.S. economy or a more dovish turn from the Fed could provide relief for the euro. At the same time, a clearer strengthening of the European economy could also become a catalyst for a more sustained recovery in the exchange rate.
In conclusion, EUR/USD remains under significant pressure, dominated by dollar strength and a yield environment that continues to favor the United States over the euro area. Although early signs of greater optimism are emerging in euro positioning, the overall bias remains bearish. The direction of the pair will largely depend on the evolution of economic data, central bank decisions, and how the market reassesses the balance of risks between both economies.