The EUR/USD experienced a slight decline, indicating a lack of momentum to surpass the 1.18 threshold. That does seem logical, especially with the New Year holiday approaching. The majority of participants are not actively trading, and in the absence of that momentum, it becomes challenging to surpass what has clearly been a significant resistance level between 1.18 and 1.1850.
Ultimately, the question now is whether EUR/USD can generate sufficient momentum to achieve a breakout, or if it will retrace towards the 50-day EMA. It seems likely that a pullback is more probable than not, but we will need to observe the situation as it unfolds. A significant portion of this hinges on the belief that the Federal Reserve will indeed implement rate cuts a few times in 2026. However, if they encounter economic data indicating otherwise, it could lead to a sharp decline in EUR/USD.
Recent indicators suggest a stronger-than-expected economic momentum in the US, and as this trend continues, there remains a tangible risk to the downside for EUR/USD. That being stated, I believe the trend remains intact until we see a breakdown beneath the 1.14 level. Currently, I view this situation as largely a maintenance of the existing conditions. We are likely to remain within the current consolidation range, thus I lean towards the downside rather than the upside at this time.
If EUR/USD manages to surpass 1.1875, the entire outlook shifts, and we can expect further upward movement. Generally, a rally that is succeeded by consolidation tends to result in continuation; however, this particular consolidation period spans six months. That duration exceeds the usual timeframe for consolidation, and naturally, multiple factors are concurrently influencing a positive outlook for the dollar. The bond market will influence this, along with basic risk appetite considerations.