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. <\/p>\n
The Euro, primarily managed by the ECB, is influenced by several economic indicators, including inflation and trade balance, which impact its value. <\/p>\n
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. <\/p>\n
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. <\/p>\n
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. <\/p>\n
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.<\/p>\n
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