EUR/USD - Fundamental / Tech & 1W/1M Macro OutlookFX:EURUSD
The EU economy might be in a coma, but EUR/USD is finally trying to pull out of a long-term bear trend. Technically, we’ve seen a breakout of key levels following a bull flag, so this week is all about confirmation or rejection. Below is my macro and technical analysis, along with a specific game plan
Fundamentals:
- before taking the technical picture under loop, it’s important to break down EUR/USD from the fundamental and macroeconomic side. Local dollar strengthening might cause a short-term drop in the euro, but it won’t be the force that pushes the price south globally
- the Eurozone has been in economic stagnation for quite a while now because production is slowly weakening due to a lack of resources, high energy prices, and high spending on non-productive sectors
- at the same time, the Eurozone is very wealthy, and the resource deficit can be offset by increased imports. To make imports more profitable, the national currency must be strong (so you can buy more goods for one unit of currency), while for more profitable exports, a weak currency is better (you get more money for one unit of goods)
- this is why the resource-rich US has a weak dollar and increases its exports, while resource-poor but cash-rich Europe increases imports and has weak exports because it can’t produce much
- for this same reason, the European Central Bank made no changes to the interest rate last week (if the rate goes down, loans become more profitable for companies, which stimulates the economy by helping production; if the rate goes up, loans become less attractive and production drops) while saying inflation might even decrease (but probably no signs of possible deflation)
- an interesting fact is that in Jan. 2026, the EU signed a truly massive trade deal with India (a country rich in resources and labor), specifically on simplified customs duties for many goods (excluding agricultural products and a few others)
- looking at this through the lens of assumptions, the EU market could be flooded with resources and goods they desperately need, and this increase in domestic resources in EU could lead to a ramp-up in production volumes, potentially boosting industrial earnings, household income, and overall GDP
- as a matter of a fact at the same time the India's market will get a major boost to its economy and production, whereas allowing to significantly increase its GDP over the next few years, and we can also see that the probability of the Indian Rupee rising definitely increases
- of course, there are opposing views and news—for example, Macron recently said the euro is too expensive and needs to be cheaper. Locally this can be the case, but globally today this is far from beneficial for Europe, so in my opinion this kind of news is more like media noise rather than the most probable outcome
Technicals:
- since Oct. 2022, the price reversed after hitting major lows and in Feb. 2025 it confirmed the start of a new medium-term bullish trend, finally breaking out of the long-term descending channel that has been in place since 2008
- during the last week of Jan. 2026, there was an attempt to break a multi-year resistance level of "medium strength" (originating from 1998), which resulted in a false breakout. Why "medium strength"? Historically, the price tends to perform a fakeout here, followed by a technical retracement to the 0.236 Fibonacci level (and rarely a deeper correction towards 0.382), before eventually resuming momentum for a full breakout
- a local correction in DXY towards 98.70 (approx. +1.12% from the current 97.60) could proportionally lead to a local EUR/USD weakening toward the 1.16910 area
- this price target coincides with a mirror support/ressistance level formed in Aug. 2017 and later confirmed in Mar. 2021 and Oct. 2021
- a strong weekly bar has left an imbalance within the {1.16984, 1.17655} range, making this a point of Interest (POI) for further liquidity hunt
- looking at the monthly chart on the screenshot below, the price is testing the upper boundary of a descending consolidation channel for the third time. This is looks like forming a bull flag pattern, which historically signals local accumulation before a further move to the upside
- 1. optimal scenario: 1.16912 is the primary target with a risk-reward ratio of 1:3.65 with taking partial profits (at 45% level of the untouched order zone) at 1.1733, in case HFTs or market makers decide to leave some liquidity untapped for a later move
- 2. optimistic scenario: should sell-side pressure prevail in the local context, the price may test the long-term support level at 1.16400
- 3. pessimistic scenario: conversely, if the price fails to break resistance and consolidate above 1.19050, we could see a move south toward 1.13960 to sweep liquidity below the 1.14680 support. However, this move would take significant time to materialize and should only be considered if the price fails to hold above 1.16400
- local short scenario invalidated if 2 bars close above 1.18780
- higher probability of global long continuation if 2 bars close above 1.19400 ( increased risk if entry at 1.19100 )
Conclusion:
- the Euro has recently broken out of a multi-year downtrend and is currently sitting at the upper boundaries of both a descending consolidation channel and a local ascending channel
- this trade is focused on a retest of the {1.16984, 1.17655} range to clear liquidity before any attempt to test the major resistance at 1.19050
- risk management constraints do not allow for a stop-loss at 1.19420 (the price level which, if held above, would confirm the continuation of the medium-term bullish move)
- the basis for this local short is a combination of the local technical setup, the macroeconomic backdrop, and the currency correlation with the DXY
- higher probability of global long continuation if 2 bars close above 1.19400 (increased risk if 1.19100)
- higher probability of global short continuation if 2 bars close below 1.16100 (increased risk if 1.16750)
- last but not least: always keep the "Black Swan" in mind and stay critical. The EU economy is still in a very fragile state, and the points mentioned above are merely attempts to resuscitate it from an economic coma. Unexpected events can always shift market sentiment overnight, rendering any technical or fundamental analysis useless. Use your head and always weigh the probabilities of different outcomes and their consequences
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Local Short Scenario:
⚠️ Short/Swing-term Signal - Sell ⬇️
✅ Entry Point - 1.1842
🛑 SL - 1.18860
🤑 Partial TP 50% - 1.1749
🤑 Final TP 100% - 1.1692
⚙️ Risk/Reward - 1 : 3.68 👌
⌛️ Timeframe - 3 weeks 🗓
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If price consolidates at 1.19 - 1.195:
⚠️ Long-term Signal - Buy ⬆️
✅ Entry Point - 1.19100
🛑 SL - 1.18170
🤑 TP - 1.22370
⚙️ Risk/Reward - 1 : 2.15 👌
⌛️ Timeframe - 3 months 🗓
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Good Luck! ☺️
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DISCLAIMER: Not financial advice. Everyone must make trading decisions at their own risk, guided only by their own criteria and strategy for opening or not opening a trade
Short
