EUR/USD Price Forecast - EURUSD=X At 1.17–1.18: Buy The Dips Before The Next 1.20+ Breakout

EUR/USD Multi Year Setup Into 2026

EUR/USD Tests Multi Year Ceiling After Steep 2025 Rally

EUR/USD steps into January 2026 trading roughly in the 1.17–1.18 band, finishing December around 1.1738–1.1763 after several failed attempts to sustain a break over the 1.1800 psychological barrier. At the start of December, the pair was sitting near 1.1585, so the market has added around 180–200 pips in a single month and roughly 13% over the past year, off a trough near 1.0400 set twelve months ago. The pair is still in a clear bullish trend, but price is now pressed directly into multi year resistance where upside becomes harder and corrective moves inside the uptrend are more likely.

Fed Cuts And Internal Split Drive USD Direction Into 2026

On the Federal Reserve side, the framework for USD is simple: the easing cycle has started, but the committee is divided on how far to go. In December, the Fed delivered its third 25 basis point cut of 2025, bringing the federal funds range down to 3.50%–3.75%. That range is now described as roughly neutral rather than overtly restrictive, and the latest dot plot shows a wide distribution of views on the 2026 path, not a tight cluster.

Futures markets currently price roughly two additional cuts in 2026, with around 60% probability attached to a move at the 26 March meeting and roughly 77% odds that the Fed reduces rates at least twice during the year. The chance of a cut as early as January is closer to 15%, which is why the USD has weakened on a structural basis but has not collapsed outright.

The division inside the committee is material. One group pushed for a larger, “jumbo” cut at the last decision, while another bloc preferred no change at all. That split matters for EUR/USD because every labour and inflation print now has the power to swing expectations. Weekly jobless claims most recently came in at 199K versus forecasts around 219K and a prior reading of 215K, signalling that the labour market is still tighter than what a deep cutting cycle would normally justify. At the same time, the Fed is openly willing to live with inflation above 2% for longer. The net result is a structural bias toward a weaker USD into 2026, interrupted by sharp counter trend rallies whenever US data surprises on the strong side.

Dollar Index Technical Map And What It Implies For EUR/USD

The US Dollar Index (DXY) sits near 98.25, not far below a recent swing high around 100.40 yet still on track to finish the year with a decline of roughly 10%, its softest annual performance in about eight years. Technically, DXY is boxed between its 50 day exponential moving average near 98.10 and the 200 day exponential moving average in the 98.60 area. Immediate resistance sits at 98.36, with the next cap around 98.74. The RSI just under 60 points to moderate positive momentum, but not an overbought regime.

A decisive push through 98.74 would confirm that the dollar has built a short term floor and could drive EUR/USD back towards the low 1.17s, with scope to test the 1.16 handle if the move extends. On the other side, a clean break under 98.00 on DXY would reopen a path for EUR/USD to attack and eventually surpass the 1.1800–1.1840 resistance zone. For now, the index structure argues for a choppy, two way market rather than a one directional collapse in the greenback.

ECB Pause And Euro Area Fundamentals Support EUR/USD Bias

The European Central Bank provides the second leg of the divergence that matters for EUR/USD. The ECB closed 2025 with policy rates unchanged and staff projections that keep inflation hovering near 2% through 2028. The forecast for 2026 inflation was nudged about 20 basis points higher, but still effectively sits on target, which signals that policymakers are broadly comfortable with the current stance. Growth projections for the euro area saw a modest upward tweak, and communication stressed that domestic demand — helped by higher infrastructure and defence spending — is expected to be the main growth engine in coming years.

Money markets assign less than a 10% probability to a 25 basis point cut by February 2026, meaning investors do not expect the ECB to shadow the Fed down the easing path in the near term. With the Fed already at 3.50%–3.75% and markets pressing for more cuts, while the ECB holds steady, the rate differential continues to lean in favour of the EUR going into 2026. That policy setup is exactly why EUR/USD has been able to climb from 1.0400 to the current 1.17–1.18 band despite constant political noise on both sides of the Atlantic.

Political Calendar And Fed Leadership Risks For EUR/USD

Politics layer another complication onto the USD story. President Trump will have the opportunity to replace Jerome Powell around May 2026, and markets are already discounting the possibility that the next Chair is more dovish than the current incumbent. At the same time, Powell has recently warned that monthly non farm payrolls could be overstating job creation by roughly 60K per month, indicating that the Fed will rely more on broader labour trends than on any single report.

If jobs data stay firm and inflation stabilises closer to 3.0%–3.5% instead of converging neatly to 2.0%, markets will be forced to pull back some of the 2026 rate cut expectations. That type of repricing would support USD and almost certainly keep EUR/USD capped below 1.20 for longer than euro bulls would like. The counter scenario, a clear deceleration in labour data and softer inflation, would reinforce the current bearish USD trajectory and give EUR/USD room to push through the multi year ceiling.

EUR/USD Technical Structure Between 1.16850 And 1.18400

From a pure chart perspective, EUR/USD remains in a higher timeframe uptrend that began when the pair based near 1.0400, but the most recent climb from 1.1585 to successive tests of 1.1800 has been steep and compressed in time. For January, a realistic speculative band sits between 1.16850 on the downside and 1.18400 at the top.

The pair ended the year around 1.1738–1.1763, just above the 50 day exponential moving average at roughly 1.1730, with deeper trend support from the 200 day exponential moving average in the 1.1705 area. On several daily and intraday views, the RSI is sliding towards 40, which indicates fading momentum and potential for consolidation, but not yet a confirmed reversal of the broader uptrend.

To the upside, the first meaningful trigger for renewed buying is a sustained close above 1.1765. Clearing that level would once again put 1.1800 in play and open a test of the upper band near 1.1840. Those levels coincide with the highs that stalled rallies in July and again in Q3 2025, so it is reasonable to assume heavy supply above 1.18. Only a decisive extension through 1.1840 would unlock a drive towards 1.1950–1.2000 as the next major destination.

On the downside, the 1.1730 zone tied to the 50 day EMA is the first support. A break below that area would expose the 1.1705 region anchored to the 200 day EMA, which effectively marks the dividing line between a healthy corrective phase and a deeper trend break. Below 1.1705, the focus shifts to the lower edge of the January projection around 1.16850, followed by a cluster of prior interest near 1.1665–1.1650 that several discretionary strategies already use as a logical target.

Liquidity Conditions And Trading Tactics Around Year End Range

The current calendar matters for trade execution. Holiday schedules mean thinner liquidity, and that magnifies noise around the key zones between 1.1760 and 1.1780. In late December, EUR/USD pushed briefly above 1.1800 multiple times before snapping back lower as volumes dried up, typical stop hunting behaviour when order books are light.

In that type of market, short term traders are often better served by fading extremes rather than chasing breakouts. One tactical structure that still makes sense while EUR/USD oscillates under multi year resistance is to sell spikes toward 1.1780 with a target near 1.1650 and a protective stop just above 1.1830. That approach effectively sells the top of the current band and buys back near the lower edge, in line with the 1.16850–1.18400 framework and the current positioning in DXY. At the same time, medium term investors who want to align with the broader fundamental trend will prefer to wait for cleaner pullbacks towards 1.1705–1.1685 to build long exposure.

Strategy Verdict EUR/USD Buy On Dips Into 1.17 Area

Putting the macro and the technical picture together leads to a clear stance. The Fed sits at 3.50%–3.75% and is expected to cut further, the ECB is effectively on hold with inflation near target, DXY is down close to 10% year on year, and the euro is up roughly 13% and about 17% above its lows. That backdrop still favours a higher EUR/USD over the 2026 horizon, with 1.20+ a realistic medium term destination once the market digests the current overbought condition.

The trade is not to chase strength into 1.1765–1.1800 where risk reward deteriorates. The smarter positioning is to treat EUR/USD as a Buy on dips, not a Sell or neutral Hold. The optimal zone for accumulation remains the 1.1705–1.1685 pocket, with risk tightly defined under 1.1650 and upside focused on a sustained break through 1.1840 that unlocks the 1.1950–1.2000 region as the next stage of the cycle.

That's TradingNEWS