EURUSD Analysis: Price drops to crucial support level, attention on Eurozone inflation and US jobs data

Main Highlights

• The US dollar has recovered its losses from the Christmas period.
• Markets still anticipate at least two rate cuts by the Federal Reserve this year, while the European Central Bank is expected to maintain its current policy.
• EURUSD has retreated to a significant support area near 1.1670.
• This week, attention is on Eurozone inflation data and the US Non-Farm Payrolls report.

Market Fundamentals Overview

US Dollar (USD)

During the Christmas holidays, the US dollar experienced broad weakness but managed to regain most of its losses as trading resumed. Holiday trading often brings erratic movements, so it’s typical for markets to revert to previous levels once normal activity returns.

From a macroeconomic perspective, little has shifted over the past two weeks. Both the latest employment and inflation figures in the US came in softer than anticipated, and the market is still factoring in approximately 63 basis points of rate reductions by the end of the year. December’s data was viewed cautiously due to potential disruptions from government shutdown concerns, but upcoming releases should provide more clarity.

Currently, investors expect the Federal Reserve’s first rate cut as early as March, but only significantly weak data this month could prompt earlier action. If economic indicators continue to underperform, expectations for further rate cuts into 2026 may rise, which could put downward pressure on the dollar.

Conversely, if upcoming data points to economic resilience, traders may scale back their rate cut expectations, which would likely lend support to the greenback.

Euro (EUR)

The European Central Bank remains cautious, maintaining a neutral stance and emphasizing a data-driven, meeting-by-meeting approach to policy. Officials have reiterated that current monetary policy is suitable and that they will not react to minor or temporary deviations from their 2% inflation target. They have also indicated that future moves could involve either tightening or easing, depending on incoming data, which has so far justified their neutral position.

This week, the release of Eurozone CPI figures is a key event for the euro. As long as inflation remains below 2.5%, the market is likely to remain calm. However, if inflation exceeds this threshold, expectations for an earlier rate hike could increase.

EURUSD Technical Analysis

Daily Chart

On the daily timeframe, EURUSD has retreated to a crucial support region near 1.1670. Buyers may look to enter positions here, setting stop-losses just below support, aiming for a potential move up toward the 1.19 area. Sellers, meanwhile, will be watching for a breakdown below this level to target a decline toward 1.14.

4-Hour Chart

On the 4-hour chart, EURUSD recently broke beneath its ascending trendline, resulting in a deeper pullback. The pair is now testing a key support zone, which also aligns with the 38.2% Fibonacci retracement level, providing additional technical significance. This confluence may encourage buyers to step in, with risk managed below support, targeting new highs. Sellers will be looking for a decisive move lower to pursue further declines.

1-Hour Chart

On the hourly chart, EURUSD is currently trading near the lower end of its average daily range for the session. This suggests that a further downside break is unlikely today, and the pair may either consolidate at current levels or attempt a rebound toward the minor descending trendline around 1.1730.

If the price approaches this trendline, sellers may use it as a reference point to enter short positions, with stops above the trendline, aiming for a break below key support. Buyers, on the other hand, will be watching for a breakout above this area to add to bullish positions, targeting a move toward 1.19.

Key Events Ahead

• Today: US ISM Manufacturing PMI release
• Tomorrow: Inflation data from major European countries
• Wednesday: Eurozone Flash CPI, US ADP employment report, US ISM Services PMI, and US Job Openings figures
• Thursday: Latest US Jobless Claims numbers
• Friday: US Non-Farm Payrolls report concludes the week