Euro Forecast: Why EUR/USD Remains Central to USD Trends into 2026

EUR/USD continues to sit at the heart of broader US dollar dynamics as markets move toward 2026. Throughout Q4, it appeared that euro bears were close to forcing a decisive breakdown, yet the 1.1500 level repeatedly held firm. That support ultimately marked the turning point, allowing a renewed phase of USD weakness in December to lift EUR/USD higher.

However, as seen multiple times over the past year, bullish momentum faded quickly above a well-defined Fibonacci resistance zone between 1.1686 and 1.1748. That region once again capped the rally, triggering a pullback from last month’s highs and reinforcing its importance as a medium-term barrier.

EUR/USD and the DXY Relationship

The euro’s 57.6% weighting in the DXY basket makes it extremely difficult for either EUR/USD or the dollar index to trend in isolation. History has consistently shown that meaningful moves in one require at least partial confirmation from the other.

This dynamic was clearly visible in mid-2024, when markets began pricing in eventual Fed rate cuts. USD/JPY sold off aggressively, and EUR/USD rallied toward the 1.1200 level despite a relatively weak Eurozone fundamental backdrop. When the Fed delivered its first rate cut in September 2024, that area held as resistance, setting the stage for a Q4 reversal.

Heading into 2025, expectations for parity became widespread, yet the pair failed to deliver. Instead, EUR/USD posted its yearly low less than two weeks into the year before forming another reversal structure that eventually ran into resistance near the 1.1700 handle.

Fibonacci Structure Defines the Broader Technical Backdrop

A long-term Fibonacci retracement from the 2021–2022 decline continues to frame EUR/USD price action. The 1.0200 area provided major support in January last year, holding the lows and allowing an ascending triangle to form in February before a breakout in March.

That breakout drove a strong multi-month advance through April, May, and June, until the rally stalled at the 76.4% and 78.6% retracement levels. Those same retracement levels remain highly relevant today and continue to act as a ceiling for bullish attempts.

EUR/USD Daily Chart

Bearish Structure Starting to Develop

Recent price action suggests that sellers are beginning to regain control. On the four-hour chart, EUR/USD has started to print lower highs and lower lows, an early sign that a bearish structure may be forming.

The 1.1500 level remains the major downside pivot. As seen previously, it rarely breaks on the first attempt, and the market’s behaviour over recent months has reinforced its significance. Should bearish momentum persist, this zone will once again become a critical test for bulls.

EUR/USD 4Hour Chart

Key Technical Levels to Watch

• Resistance

  • 1.1686: 76.4% Fibonacci retracement, a key cap on upside.

  • 1.1656–1.1669: Prior resistance turned near-term supply zone.

• Support

  • 1.1616: Recent swing low, offering initial support.

  • 1.1593–1.1600: Broader support zone, previously major resistance.

  • 1.1542–1.1550: Secondary support area ahead of major levels.

  • 1.1500: Major psychological and structural support.

    
    

Bottom Line

EUR/USD remains the fulcrum for broader USD direction into 2026 due to its dominant role in the DXY basket. While longer-term history shows a strong tendency for reversals around quarterly and yearly turning points, near-term structure is starting to tilt bearish. With US labour data approaching, particularly NFP, the potential catalyst exists for both EUR/USD and the US dollar to define their next meaningful trend.