US Economic Data Overview
The EUR/USD pair struggled against resistance at the 20-day SMA, falling below 1.1650. Sellers hold momentum, with risks of breaching the 200-day SMA at 1.1575, targeting lower lows. Conversely, surpassing the 50 and 100-day SMAs could revive the pair, aiming for the 20-day SMA at 1.1716.
The Euro, primarily managed by the ECB, is influenced by several economic indicators, including inflation and trade balance, which impact its value.
The recent drop in EUR/USD below 1.1650 is a clear signal that the strong US dollar narrative is taking hold. This is driven by a surprisingly resilient American labor market, underscored by the recent December 2025 Nonfarm Payrolls report which showed a blockbuster addition of 353,000 jobs, crushing expectations. Despite benign US inflation figures, this labor strength gives the Federal Reserve a reason to delay rate cuts.
Looking back at 2025, we saw the Fed cut rates because of a weakening job market, even though inflation was still high. The situation today is the opposite, with a solid labor market and core inflation that remains stubbornly above target, ending December 2025 at 3.9% year-over-year. This makes it difficult for the Fed to justify the significant rate cuts the market was previously anticipating.
Rate Expectations and Market Impact
As a result, we are seeing a major shift in rate expectations for 2026. The probability of a March rate cut has plummeted, with many now pricing in the first 25-basis point reduction for the second quarter, possibly as late as June. This repricing is providing significant support for the dollar against the euro.
On the other side of the pair, the Eurozone is showing signs of economic divergence. The latest Harmonized Index of Consumer Prices for the bloc came in at 2.8%, well below US inflation levels, giving the European Central Bank more room to consider cutting rates sooner. Furthermore, key data like the 0.7% month-over-month fall in German industrial production for December 2025 points to a softer economic footing.
