Since being rejected from the yearly highs near the 1.2100 mark in late January, the short-term picture for EUR/USD has been steadily deteriorating. The pair’s recent break below the key 200-day Simple Moving Average (SMA) also suggests that further downside retracements could be in the pipeline in the short-term horizon.

EUR/USD retreats for the third consecutive day on Thursday, coming closer to the key contention area around 1.1500.

The deeper retracement in spot follows another robust performance of the US Dollar (USD) as the Middle East conflict remains far from abated despite President Trump’s latest comments suggesting the crisis could be near its end.

Against that, the US Dollar Index (DXY) climbs to fresh four-month peaks pat 99.70, opening the door to a test of the psychological 100.00 barrier sooner rather than later. The move higher in the Greenback also appears underpinned by a decent uptick in US Treasury yields in the short end and the belly of the curve.

A “hold” decision from the Federal Reserve (Fed) at the March 18 meeting is now almost fully priced in, although markets still see around 23 basis points of easing by year-end.

At its previous meeting, the Federal Open Market Committee (FOMC) sounded noticeably more comfortable with the broader economic backdrop: Growth continues to hold up well, employment risks are no longer seen as deteriorating, and although inflation remains somewhat elevated, the sense of urgency around it has clearly faded.

Chair Jerome Powell described policy as being in a “good place”, reiterating that decisions will continue to be taken meeting by meeting. Regarding tariffs, he acknowledged they remain a source of inflation noise while also highlighting ongoing disinflation in the services sector. Additionally, Powell noted that a rate hike is not the base case, but neither is an imminent pivot towards rate cuts.

The Minutes reinforced that balanced stance. Indeed, rate cuts remain possible if inflation continues to cool, although hikes have not been ruled out should price pressures prove more persistent than expected. In short, the Fed remains firmly data dependent.

The European Central Bank (ECB) also left interest rates unchanged in a unanimous decision.

In her latest remarks, President Christine Lagarde struck a calm but cautious tone. Inflation is still expected to return to the 2% target over the medium term, although services prices remain under close scrutiny, and further easing is projected into 2026.

Lagarde also highlighted resilient wage growth, a still-solid labour market and steady investment dynamics across the euro area. At the same time, she reiterated that while the ECB closely monitors the Euro (EUR), it does not target the exchange rate.

Markets currently price nearly 44 basis points of tightening by year-end, while a hold at the March meeting is practically a done deal.

For now, the ECB appears broadly comfortable with its current policy stance while continuing to emphasise a cautious, data-dependent approach.

Recent Commodity Futures Trading Commission data indicates a slight easing in bullish Euro positions.

Speculative net long positions dipped to approximately 136.5K contracts for the week ending March 3rd, the lowest level in five weeks. This could mean some investors are getting more careful, scaling back their exposure following the recent price surge.

Simultaneously, institutional investors cut their net short positions to around 184.6K contracts, also the lowest level seen in several weeks.

This suggests a market in flux, with both buyers and sellers repositioning themselves, rather than a definitive trend emerging.

Trading volume stays strong. Open interest climbed to about 913.3K contracts, a sign that the market is still lively, despite a slight cooling of speculative interest.

The overall positioning continues to favour the Euro, though the strength of bullish sentiment seems to be waning a touch as investors take a fresh look at the larger economic picture.

Near term: the US Dollar continues to set the tone for the pair, as markets continue to grapple with trade uncertainties and ongoing geopolitical strains, both of which are bolstering the buck. The next key releases on the US calendar include the Personal Consumption Expenditures (PCE) report, another revision of Q4 Gross Domestic Product (GDP) data and the preliminary University of Michigan consumer sentiment survey.

Risks: if global tensions continue, the US Dollar's status as a safe haven could intensify, potentially putting additional strain on risk-sensitive assets. Technically speaking, a persistent dip beneath the 200-day SMA would heighten the likelihood of a more pronounced correction in the currency pair.

In the daily chart, EUR/USD trades at 1.1522. The near-term bias is bearish as spot holds below the 55- and 100-day Simple Moving Averages (SMAs) clustered around 1.1750–1.1700, while the 200-day SMA near 1.1677 caps the broader recovery profile overhead. Price keeps pressing lower lows on a sequence of closes, and the Relative Strength Index (RSI) at 29 signals oversold momentum, reinforcing selling pressure rather than a completed exhaustion at this stage. The Average Directional Index (ADX) rising toward 31 shows trend strength rebuilding on the downside after a prior consolidation phase, suggesting that sellers retain control while the pair trades beneath the moving average band and immediate horizontal resistances.

On the topside, initial resistance stands at 1.1578, ahead of 1.1766, both aligned with former consolidation highs and the descending SMAs, where failure would keep the downtrend intact. A daily close above 1.1766 would be needed to ease bearish pressure and open the way toward 1.2082. On the downside, immediate support emerges at 1.1491, followed by 1.1469, with a break lower exposing the next level at 1.1392. As long as the pair holds below 1.1578, the technical backdrop favours further tests of these lower supports rather than a sustained rebound.

For now, EUR/USD is being driven far more by developments in Washington than by events in Frankfurt.

Until the Fed’s policy path becomes clearer, or the euro area delivers a stronger cyclical rebound, rallies in the pair are likely to remain limited. At this stage, the US Dollar remains firmly in the driving seat.