Euro Softens Against Dollar as Risk Aversion Builds and Technical Support Nears

Key Moments

Macro Drivers and Market Sentiment

EUR/USD remains under pressure for a fourth session on Monday. The pair trades near 1.1760 after topping 1.1800 last week.

Meanwhile, the U.S. dollar is firming as investors reassess global risk and policy signals.

Market focus stays on geopolitics and central bank expectations. As a result, the dollar is gaining support.

Investors are watching talks between U.S. President Trump and Ukrainian President Volodymyr Zelenskyy. At the same time, tensions in Asia continue to rise.

After their meeting, Trump said a peace deal in Ukraine is “a lot closer.” However, disputes over the Donbas region remain unresolved.

These unresolved issues still pose risks. Therefore, markets remain cautious.

Policy Outlook and Economic Data

The key event this week is the release of the Fed’s December meeting minutes. At that meeting, the Fed cut rates by 25 basis points.

The central bank also signaled the chance of another cut in 2026. As a result, markets expect at least two cuts next year.

In contrast, the euro is pulling back only modestly. Still, it trades near three-month highs.

Meanwhile, central bank divergence remains a core theme. The ECB stays relatively hawkish, while the Fed leans dovish.

This contrast limits any sustained rebound in the U.S. dollar.

On the data front, the U.S. will release Pending Home Sales for November. Economists expect a 1% rise.

Previously, U.S. GDP grew 4.3% in the third quarter. Growth accelerated from 3.8% in Q2.

However, the dollar failed to gain lasting support from the data.

According to CME FedWatch, futures still price in two to three Fed rate cuts in 2026.

Geopolitical Tensions and Safe-Haven Flows

Risk sentiment also faces pressure from Asia. China announced major military drills around Taiwan.

At the same time, Taiwan reported several Chinese vessels near its waters.

These developments add to regional tension. As a result, they continue to support the safe-haven U.S. dollar.

EUR/USD Technical Picture: Key Levels in Focus

From a technical view, EUR/USD is retreating from last week’s peak near 1.1800.

Momentum indicators now point lower. On the four-hour chart, RSI has slipped below 50.

Meanwhile, MACD shows red histogram bars after a bearish crossover.

Despite the pullback, buyers may find support near 1.1755. This level marks a rising trendline.

A clear break below this zone would weaken the bullish structure.

In that case, EUR/USD could slide toward the December lows near 1.1700.

On the upside, resistance sits near 1.1805. The pair stalled there on December 16 and 24.

A break higher would expose 1.1820. Above that, the Fibonacci extension stands at 1.1863.

Euro: Structure, Policy and Key Drivers

What is the Euro?

The euro is the currency of 20 European Union countries.

It is the second most traded currency after the U.S. dollar.

In 2022, it accounted for 31% of global FX turnover.

EUR/USD is the most traded currency pair worldwide.

Role of the European Central Bank

The ECB sets interest rates and manages monetary policy for the Eurozone.

Its main goal is price stability.

Higher interest rates usually support the euro. Lower rates tend to weaken it.

The ECB Governing Council meets eight times per year to set policy.

Impact of Inflation on the Euro

Inflation data plays a key role in euro pricing.

If inflation exceeds the ECB’s 2% target, the bank may raise rates.

Higher relative rates often attract foreign investment.

Economic Data and the Euro

Economic data helps shape euro direction.

Key indicators include GDP, PMIs, jobs data, and sentiment surveys.

Strong data tends to lift the euro. Weak data often pressures it.

Germany, France, Italy, and Spain drive most euro-area output.

Trade Balance as a Currency Driver

The trade balance also affects the euro.

A surplus increases demand for the currency.

By contrast, a deficit can weaken it.