EUR/USD Price Forecast - EUR Steadies Near 1.1870 as Softer 2.4% CPI Knocks the Dollar Index

EUR/USD – CPI relief keeps the pair pinned near 1.1870 as policy gap with the Fed widens

US inflation cools to 2.4% and takes the edge off the dollar rally

January US CPI rose 0.2% month-on-month and 2.4% year-on-year, below the 2.5% forecast and down from 2.7%. Core CPI increased 0.3% on the month, with the annual core rate easing to 2.5% from 2.6%. That combination signals disinflation is still advancing, even if underlying price pressure is not collapsing.
The dollar index slipped about 0.01% on the session and pulled back from an intraday high near 97.15, giving up earlier gains as Treasury yields fell and rate-cut bets firmed. Derivatives markets now price roughly 60–61 bps of Fed easing by year-end, versus about 58 bps before the release, and see around a 65% probability that the first cut arrives between June and July. Near-term odds for a March move remain low, near 10%, but the direction of travel for expectations is clear: the Fed is still on track to ease in 2026, not to tighten again.

Fed versus ECB: structural pressure points favor EUR/USD on medium-term horizons

Rate path assumptions now work against the dollar on a structural basis. The Fed is expected to cut policy rates by around 50–60 bps in 2026. At the same time, the European Central Bank is widely seen leaving rates unchanged, while the Bank of Japan is expected to add another 25 bps of tightening. That mix implies narrowing rate differentials versus both Europe and Japan.
For EUR/USD this is important. If the Fed is the only major central bank easing, while the ECB is effectively on hold, the interest-rate spread that supported the dollar over the past cycle erodes. That supports a higher euro over the medium term, even if the pair is currently locked in a tight range. The ECB is already signaling discomfort with excessive euro strength: officials like Martins Kazaks are “in monitoring mode” on the currency and warn that a “sizeable and pacey” appreciation could pull inflation under target. That acts as a soft cap on aggressive EUR/USD upside, but it does not change the basic fact that policy divergence now tilts against the dollar, not in its favor.

EUR/USD – compression around 1.1850 shows a market waiting for a breakout trigger

Technically, EUR/USD has compressed around 1.1850, which is behaving like a short-term magnet. The 1.18 area below is reinforced by the 50-day EMA, creating a layered support zone. As long as the pair holds above that band, the price action looks like consolidation after an upside break rather than a failed move.
A clear daily close below the 50-day EMA and 1.18 would argue that dollar strength is back in charge and open room for a deeper retrace. In that scenario, dollar resilience would likely show up across the board, not only against the euro. Conversely, a sustained push above the recent highs near the 1.19 handle would confirm that the pair is building a new, higher range in line with the Fed–ECB divergence story.

USD/JPY – yen resilience tests the upper bound of the dollar cycle

USD/JPY remains the purest expression of how far the dollar can stretch when domestic rates are expected to fall while foreign yields rise. The pair has been capped by resistance near 158.00 and is finding a floor around 152.00. That 152 region now acts as a key line in the sand: holding above it keeps the broader bullish dollar trend intact; a break below would signal a deeper reset in favor of the yen.
The backdrop in Japan is shifting. BOJ Board member Naoki Tamura is already talking about conditions being “quite possible” for a rate hike as early as this spring, provided wage growth again aligns with the 2% inflation target. Markets price roughly a 20% chance of a move at the March meeting, but the more important point is direction: the BOJ is no longer guaranteed to anchor rates at zero.
That sits alongside Japan’s domestic politics. The prime minister’s reassurance that a tax cut on food sales will not require extra debt issuance helps calm fiscal fears. Less pressure on public finances makes it easier for the BOJ to normalize cautiously. At the same time, simple math still argues Japan cannot sustain its debt without either higher inflation or a weaker currency over the long run. That is why every dip in USD/JPY is still watched as a potential buying opportunity, even as the window for a one-way dollar trend is closing.

AUD/USD – CPI relief and RBA stance keep the Aussie range-bound but biased higher

AUD/USD reacted to the same US CPI print with a modest bounce. Softer US inflation reinforced the view that the Fed will cut, while the Reserve Bank of Australia remains relatively hawkish after its recent rate increase and the risk of another move.
Technically, the pair faces a clear trigger structure. A clean break above 0.71 would complete a bullish continuation pattern and open the way for a push toward the next resistance band higher. On the downside, 0.69 is the key support level; as long as it holds, dips continue to look like value zones rather than the start of a new downtrend. The combination of Fed easing expectations and a still-firm RBA stance favors a gradual grind higher rather than an immediate, sharp move.

Dollar index and macro regime – capped by politics, deficits and global flows

Beyond the CPI print, the dollar index still carries heavy structural headwinds. It recently hit a four-year low after President Trump publicly embraced a weaker dollar, signaling that the administration views depreciation as acceptable, even desirable. At the same time, foreign investors are pulling capital out of the US against a backdrop of a widening budget deficit, aggressive fiscal spending and growing political polarization.
Markets now expect about 50 bps of Fed cuts this year, compared with a flat path for the ECB and another hike from the BOJ. That triple divergence – Fed easing, ECB on hold, BOJ tightening – is not a configuration in which the dollar can easily sustain an extended bull run. Short-term, US data surprises can still drive sharp spikes, but the bigger picture is of a currency that faces more reasons to weaken on rallies than to break higher in a durable way.

Volatility, options pricing and strategy around the next CPI cycles

With EUR/USD stuck in a tight range and macro drivers pulling in opposite directions, implied volatility in options looks low relative to the potential for a macro shock. The last delayed January CPI episode in 2025 showed how quickly markets can swing when headline inflation is soft but core proves sticky.
A similar pattern is possible again: headline inflation is easing thanks to energy and goods, but core services remain firm. That uncertainty makes straddles and other long-volatility structures attractive for those positioning around the next inflation releases. Tight ranges like the current 1.18–1.19 zone in EUR/USD rarely last: they usually resolve with a decisive break once one data point resets the rate-cut narrative.

Direction call – EUR/USD: moderate bullish bias, USD/JPY: range with upside risk, AUD/USD: constructive above 0.69

Putting the pieces together: US inflation is easing, the Fed is on track to cut by roughly half a percentage point, the ECB is likely on hold, and the BOJ is inching toward another hike. The dollar still benefits from its safe-haven status in risk-off episodes, but the structural rate story no longer favors it.
For EUR/USD that means a moderate upside skew while the pair oscillates around 1.1850–1.1900. As long as 1.18 and the 50-day EMA hold, the path of least resistance is a gradual move higher rather than a breakdown.
USD/JPY remains range-bound but still tilted to the upside as long as 152 holds, with any break above recent highs re-opening the 158 area.
AUD/USD looks constructive above 0.69, with a clear tactical trigger at 0.71 that would confirm a broader bullish phase in line with a softer dollar and a relatively firmer RBA stance.