EUR/USD at 1.18 as Dollar Weakens, Gold at $4,500 and Fed Credibility All Hit the Tape
EUR/USD trades around 1.1772–1.1810 while the dollar bleeds risk premium
The EUR/USD pair is sitting near 1.1770–1.1810 into the final days of 2025, marking a three-month high just below 1.1810 and highlighting how aggressively the dollar has lost ground even against a euro backed by only moderate growth. Spot EUR/USD touched just under 1.1810 before slipping back toward 1.1772, but the key point is that rallies above 1.17 are now holding instead of being sold, which was not the case earlier in the year. That shift tells you the market has moved from trading a cyclical dollar upswing to testing how far a structural dollar repricing can go as rate and political risk move against the US currency.
EUR/USD benefits from Fed–ECB rate gap compression with Fed cuts priced, ECB on hold
Rate differentials remain the cleanest fundamental story for EUR/USD. The European Central Bank has locked its deposit facility at 2.0%, with headline euro-area inflation at roughly 2.15% and projections nudged slightly higher, mostly on services. The signal is “on hold, not easing fast,” which effectively hardens the euro’s floor. On the other side, the Federal Reserve has already cut its policy rate from 4.00% to 3.75%, and the market is still counting on at least three additional cuts through 2026. That takes the front-end yield advantage of the USD down every quarter and pushes investors to reallocate toward euro-denominated assets. Banks looking ahead talk about EUR/USD grinding toward the 1.24 region by end-2026 on this differential alone, even if the path is choppy.
EUR/USD positioning is stretched: 145,000 long futures contracts raise correction risk
Speculative futures positioning shows how crowded the trade has become. Long non-commercial EUR exposure has climbed to around 145,000 contracts, up from roughly 138,000 and now sitting at a two-year high. That level of positioning is consistent with the current EUR/USD zone near 1.18, but it also increases the risk that any disappointment in Fed-cut timing, ECB tone, or euro-area data triggers a shakeout. Technically and psychologically, the 1.20 area is heavy resistance; with positioning this extended, the pair is vulnerable to a 100–150 pip washout back toward 1.1650–1.17 before any sustained push through 1.20 can stick.
EUR/USD still trades inside a medium-term uptrend but faces 1.1650 downside risk
Shorter-term structure in EUR/USD is not as cleanly bullish as the macro narrative. On the four-hour chart the pair has already completed one leg down to around 1.1702, bounced to roughly 1.1737, and is in the process of building another impulse lower aimed at the 1.1650–1.1645 band. Analysts who track wave structure frame this as a developing third downside leg within an uptrend, with 1.1650 as the first major test of whether bulls are willing to defend the move from sub-1.15 lows. Momentum indicators back that caution: MACD on H4 sits below zero with its signal line angled lower, while intraday stochastic readings sit below 50 and point down, both consistent with further pressure toward 1.1650 before dip-buyers reload.
EUR/USD history shows NFP can flip the narrative quickly when the USD gets a growth shock
Recent price action around 1.18 in EUR/USD echoes older episodes where US data reset the dollar’s trajectory in a matter of days. When non-farm payrolls previously printed 209,000 versus expectations near 183,000, the USD staged a sharp rebound after weeks of selling, forcing EUR/USD to pull back from around 1.1800 toward the mid-1.17s. The lesson for now is simple: with the pair back near 1.18 and the market positioned heavily long euro, any upside surprise in US jobs, inflation, or growth can still deliver a fast 50–100 pip correction without changing the broader medium-term dollar-bearish story.
EUR/USD is riding the same macro wave that pushed gold above $4,500 and silver toward $80
The dollar’s problem is no longer just relative rates; it is credibility and safe-haven status. Precious metals have effectively replaced the USD as the preferred hedge in this phase. Spot gold (XAU/USD) has exploded above $4,500 an ounce, with intraday spikes near $4,550 and a roughly 70% year-to-date gain, while silver has ripped toward the high-$70s per ounce. When both gold and silver are printing all-time highs at the same time that EUR/USD grinds up to 1.18, the market is sending a clear signal: the dollar is not being treated as the default defensive asset. For cross-asset traders this matters because strong metals and a soft dollar typically reinforce each other; as long as gold holds above about $4,300 and the dollar index struggles, EUR/USD will find dip-buyers quicker than in a traditional “USD as safe haven” regime.
Gold price target: XAU/USD bulls eye $4,700–$4,900 as long as 4,200 support and falling yields hold
The same Fed dynamics that drive EUR/USD are also giving XAU/USD a clear upside map. Market pricing shows roughly an 82% chance that the Fed holds rates at its January 28, 2026 meeting, but March probabilities are almost evenly split between “unchanged” (around 46.7%) and a 25 bp cut that would take the policy rate to about 3.50%. US 10-year yields have already slid from near 4.2% to roughly 4.1%, and every 10 bp step lower reduces the opportunity cost of holding gold. Technically, gold has respected an aggressive three-month uptrend, pushed RSI into overbought territory above 70, and built a support cluster around $4,200–$4,300. As long as that band holds and yields grind lower, a working institutional target zone around $4,700 initially and up toward roughly $4,900 on a 6–12 month view is realistic. That metals backdrop is another indirect headwind for the USD, which supports EUR/USD over the medium term even if the pair corrects in the short run.
Fed risk premium and central-bank independence concerns keep USD on the defensive versus EUR
The USD is no longer trading only off the expected number of rate cuts. A distinct “risk premium” has built into the currency as investors question central-bank independence and long-term fiscal discipline. Even as US Q3 GDP clocks an impressive 4.3% annualised—up from 3.8% and well above prior expectations nearer 3.3%—the dollar fails to benefit. That tells you the market is discounting strong data and focusing on whether future policy will be driven by economics or politics. By contrast, the ECB’s conservative stance and reluctance to rush into cuts give the EUR a perception of institutional stability. For EUR/USD, that combination—politicised Fed plus technocratic ECB—encourages asset allocators to move marginal capital away from the dollar into the euro, especially at a time when precious-metals strength confirms that investors are hedging US policy risk.
Sentiment: EUR/USD rides a “not the dollar” trade as Fear & Greed stalls near 58
Risk sentiment is supportive without being euphoric. Broad equity sentiment gauges, such as fear-greed style indices, have recovered from “fear” to the “greed” zone around 58, but that ascent has started to flatten into year-end. For EUR/USD this midpoint sentiment regime is ideal: markets are not panicking into the dollar, yet they are not so risk-on that investors dump hedges and rotate back into US assets en masse. As long as confidence stays in this neutral-to-positive band—enough to support flows into European and global risk assets, but not enough to rehabilitate the USD as the clean safe haven—the euro retains a structural bid against the dollar.
Short-term EUR/USD levels: 1.1650 downside, 1.1810 and 1.20 upside, with 1.18 as the pivot
From a trading perspective, the EUR/USD map is tight and asymmetric. On the downside, 1.1700–1.1730 has already acted as a staging area for bounces after the latest dip to around 1.1702; a clear break below that zone points toward 1.1650–1.1645, where both H4 wave projections and intraday momentum indicators converge. A decisive close below 1.1650 would validate the view that the current move is more than just a shallow pullback. On the upside, the first cap is the recent three-month high just under 1.1810, followed by the psychological and positioning-heavy 1.20 band. With speculative longs crowded, every test of 1.18–1.20 risks being sold by fast money, but medium-term investors watching the Fed–ECB spread will treat dips to 1.17 and 1.1650 as opportunities to reload rather than as trend reversals.
EUR/USD call: medium-term bullish, tactical buy on dips, effectively a “BUY” with short-term correction risk
Putting everything together—EUR/USD near 1.18, Fed cuts priced while the ECB stays on hold, US 10-year yields easing toward 4.1%, gold holding above $4,500, silver near $80, speculative euro longs elevated at roughly 145,000 contracts, and technical support clustered around 1.1650—the balance of evidence still favours euro strength over the medium term and dollar weakness on rallies. The structure argues for a BUY stance on EUR/USD, but not at any price: the cleaner risk-reward sits on pullbacks into the 1.1700–1.1650 band, with a medium-term upside target toward 1.20 first and then the 1.22–1.24 zone on a 12- to 18-month horizon. Short term, the pair is stretched and vulnerable to data-driven flushes lower, yet as long as 1.1650 holds on closing basis and the Fed path stays more dovish than the ECB, the dominant trend remains bullish for EUR/USD, not for the USD.
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