Euro Declines; Technicals Signal Further Downside

Key Moments

Risk-Off Mood Keeps Euro on the Defensive

The Euro (EUR) edged slightly higher against the U.S. Dollar (USD) on Friday, trading close to 1.1800 at the time of writing after earlier touching a new two-week low at 1.1765. The pair remained constrained below the 1.1800 level as selling pressure across equity markets underpinned demand for the safe-haven Dollar.

A broad decline in global stocks, led by technology names, created a risk-averse backdrop that supported the Greenback. At the same time, disappointing German Industrial Production data weighed on the Euro, reinforcing the downside bias in EUR/USD.

Dollar Strengthens Despite Weak U.S. Labor Data

The U.S. Dollar drew additional support from a global equity sell-off, with technology shares leading losses amid mounting concerns about aggressive capital expenditure on Artificial Intelligence (AI). The souring risk sentiment overshadowed the impact of a series of weaker U.S. employment indicators that have increased pressure on the Federal Reserve (Fed) to bolster job creation.

The Dollar traded higher against major peers after U.S. President Donald Trump selected former Fed Governor Kevin Warsh to replace Jerome Powell as Fed Chair. Market participants viewed Warsh as likely to defend the central bank’s independence while maintaining a cautious stance toward additional monetary easing.

ECB Holds Steady as Eurozone Data Disappoints

On Thursday, the European Central Bank (ECB) left interest rates unchanged, as widely anticipated, and dismissed concerns about Euro strength. Policymakers signaled that monetary policy is likely to remain steady for the foreseeable future.

The ECB kept its Rate on the Deposit Facility at 2% and reaffirmed its assessment that inflation will settle around the 2% target, despite recently soft Consumer Price Index (CPI) readings in the Eurozone. ECB President Christine Lagarde reiterated that monetary policy is in a “good place” and played down inflation risks associated with a stronger Euro.

Eurozone Industrial Output Contracts Sharply

Fresh data from the Eurozone on Friday showed a notable setback in German Industrial Production. Output fell 1.9% in December, a significantly larger decline than the 0.3% drop expected by markets. In addition, November’s figure was revised lower to 0.2% growth from the previously estimated 0.8% increase.

Key Euro Area Indicator Snapshot

U.S. Labor Data and Fed Expectations

In the United States, labor market figures signaled a loss of momentum. Weekly Initial Jobless Claims climbed to 231K in the week ending January 31, up from 209K the previous week. Job openings fell to a five-year low of 6.542 million in December, compared with 6.928 million in November.

These figures followed a weaker-than-expected ADP Employment report on Wednesday and pushed markets to increase expectations for Fed rate cuts in the first half of the year. According to the CME Group’s FedWatch tool, the probability of a March reduction in interest rates rose to 22% from 9% earlier in the week, while the likelihood of an April cut increased to 40% from 24% in prior days.

Later on Friday, the focus in the U.S. will turn to the preliminary Michigan Consumer Sentiment Index, which is expected to have eased to 55.0 in February from 56.4 in January.

The crucial U.S. Nonfarm Payrolls (NFP) report has been postponed to the following week due to a partial government shutdown.

Event Risk: ECB Speaker and U.S. Sentiment Data

On the European side, market participants will monitor comments from ECB Governing Council Member Martin Kocher later on Friday. In the U.S. session, the preliminary reading of the Michigan Consumer Sentiment Index will be closely watched for additional clues on household confidence and spending intentions.

Euro Performance Against Major Currencies

The latest pricing showed the Euro strengthening most notably versus the U.S. Dollar. The table described in the original report summarized the daily percentage change of the Euro against a basket of major currencies, highlighting that EUR was the strongest against USD on the day.

The referenced heat map illustrated percentage moves among major currencies, with the base currency taken from the left column and the quote currency from the top row. For instance, selecting the Euro as the base and the U.S. Dollar as the quote would display the percentage change for the EUR/USD pair in the corresponding cell.

Technical Outlook: Bearish Bias Intact for EUR/USD

From a technical perspective, EUR/USD remained in a corrective downtrend. On the 4-hour chart, indicators pointed to a neutral-to-bearish setup. The Moving Average Convergence Divergence (MACD) line was flattening around the Signal line, while the Relative Strength Index (RSI) held below the 50 level, in territory consistent with moderate bearish momentum.

The pair was finding support in the zone between the 61.8% Fibonacci retracement of the late January rally at 1.1772 and the January 20 and 22 highs just above 1.1765. A clear break below this area would expose the next downside reference at the January 21 low near 1.1670.

On the topside, a shift in trend would require a decisive move above Wednesday’s high at 1.1838 and Monday’s high at 1.1874.

(The technical analysis of this story was written with the help of an AI tool.)

Indicator Focus: German Industrial Production

The Industrial Production series released by the Statistisches Bundesamt Deutschland tracks output from German factories and mines. Movements in this indicator are widely monitored as a key gauge of the health of the manufacturing sector. Strong readings are generally interpreted as supportive, or bullish, for the Euro, while weaker outcomes tend to be viewed as negative, or bearish, for the currency.