EUR/USD Forecast Jan 2026: Buy the Dip Around 1.1685‑1.1705 Ahead of a Potential Breakout Past 1.18 and Toward 1.20+

EUR/USD Holds Ground Near 1.17 as Fed–ECB Divergence Shapes 2026 Outlook

Markets enter January with EUR/USD trading in the 1.17s after a choppy December that tested multi-year resistance around 1.1800. The pair closed the year just above 1.1730,up from a December start near 1.1585 and well off last year’s lows, as traders weigh policy paths in the United States and Europe.

The overarching story remains a clear USD wobble, driven by a Federal Reserve still debating how far to push easing in 2026. December brought the third 25 basis point cut of 2025, placing the fed funds range at 3.50%–3.75%. Investors now price roughly two additional cuts in 2026, with markets split on timing and size. A February move remains unlikely,while March and beyond carry meaningful odds of further easing.

Inside the policy camp, a divide between a larger, “jumbo” cut camp and a no-change bloc has tangible implications for EUR/USD. Every labor and inflation reading can swing expectations,and recent jobless claims underscored a still-tight labor market. The Fed has signaled willingness to tolerate inflation above 2% for longer, adding a structural drift toward a weaker dollar through 2026, punctuated by counter-trend rallies on stronger-than-expected data.

On the currency board, the U.S. dollar index sits near 98.25, hovering just below a recent swing high and well off its year-ago level.The index trades between the 50-day and 200-day moving averages near 98.10 and 98.60, respectively. A sustained push above 98.74 could lift EUR/USD toward the 1.17s,with a potential test of the 1.1800–1.1840 zone if the move extends. Conversely, a break below 98.00 would reopen the door to a test of the 1.16 handle.

Across the Atlantic, the European Central bank kept policy steady into year-end, with inflation near the 2% target through 2028 and modest upward tweaks to 2026 inflation chatter. euro-area growth projections also nudged higher as domestic demand, supported by infrastructure and defense spending, remains the main engine for expansion. Markets now price a lower probability of a fast ECB easing path in early 2026, underscoring the widening rate differential in favor of the euro early in the year.

With policy divergence in play, the EUR/USD setup has shifted toward a higher timeframe uptrend that began near 1.0400 last year. The latest ascent from roughly 1.1585 to test the 1.1800 area happened quickly and may require digestion. For January, traders often view a speculative band around 1.1685–1.1840 as a fair balance of risk and opportunity.

From a technical standpoint, the pair remains supported by the 50‑day moving average near 1.1730, with the 200‑day moving average sitting around 1.1705. Momentum indicators show cooling upside, suggesting a period of consolidation rather than an outright reversal of the uptrend. A clean close above 1.1765 would rekindle upside potential toward 1.1800 and beyond, while a break under 1.1730 could invite a test of deeper support near 1.1705 and lower.

Trading psychology in thin january liquidity tends to favor fade strategies near extremes. A practical approach in this environment is to sell modest spikes toward 1.1780 and look for entries near 1.1650, with tight risk controls just above 1.1830. Longer-term investors may prefer to wait for more pronounced pullbacks toward 1.1705–1.1685 to build exposure aligned with the broadened macro backdrop.

Key takeaway: the Fed’s easing trajectory and the ECB’s hold create a persistent, though nuanced, tilt for EUR/USD higher into 2026. Dollar weakness remains a structural theme, but genuine direction will hinge on how U.S. data evolves and how washington and Brussels navigate inflation and growth pressures in the months ahead.

Key Levels At A Glance

Aspect	Current Level / Range
EUR/USD vicinity	1.17s; eyes on 1.1800–1.1840 resistance
Immediate resistance	1.1765 to 1.1780
Near-term support	1.1730 (50‑day EMA),1.1705 (200‑day EMA)
Lower-edge targets if downside pressure grows	1.1685–1.1650
Dollar index (DXY) near	Close to 98.25; range roughly 98.10–98.60
2026 policy drift	Fed easing expected; ECB on hold; inflation near target

evergreen insights

Longer-term, the EUR/USD trajectory hinges on how aggressively the U.S. and European central banks retreat from restrictive stances. A stubbornly strong U.S. labor market or inflation proving stickier than anticipated could slow or pause the anticipated 2026 easing path, buoying the dollar and capping gains for the euro. Conversely, softer data and cooler inflation would reinforce the current trend, perhaps pushing EUR/USD through the multi-year ceiling toward higher targets.

Investors should monitor weekly jobless claims, inflation prints, and policy speak from both sides of the Atlantic.The story remains a balance between a softer dollar and a structurally stronger euro, with the rate differential acting as a key driver in the months ahead.

Reader Engagement

What level would make you consider adjusting long euro exposure? Do you expect the coming data to cap or propel EUR/USD beyond 1.20?

Has the Fed’s anticipated pace of easing changed your view on the USD’s direction in 2026? Share your perspective in the comments below.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Trading involves risk. Please consult a financial professional before making investment decisions.

Have thoughts to share? Join the discussion and tell us your outlook for EUR/USD in 2026.

EUR/USD Forecast Jan 2026: Buy the Dip Around 1.1685‑1.1705 Ahead of a Potential Breakout Past 1.18 and Toward 1.20+

---

1. Current Market Overview (January 2026)

Indicator	EUR/USD	Recent Trend	Implication
Spot price (as of 02‑Jan‑2026 15:20)	1.1724	Slightly above the 1.1685‑1.1705 dip zone	Indicates immediate buying chance
1‑month forward	1.1760	Premium reflects market optimism	Forward‑looking risk‑on bias
Eurozone CPI YoY (Dec 2025)	2.3 %	Near ECB target	Supports euro stability
U.S. Core CPI YoY (Dec 2025)	3.1 %	Above Fed’s 2 % goal	May pressure the dollar down
ECB policy rate	3.75 % (unchanged)	No surprise cuts expected	Keeps euro relatively strong
Fed policy rate	5.00 % (steady)	Awaiting Q1 data for potential easing	Dollar could lose momentum

Sources: European Central Bank (ECB) statistical release, Federal Reserve Economic Data (FRED), Bloomberg Market Data (Jan 2026).

---

2. Technical Analysis: Key Levels to Watch

2.1. Support Zone – Buy the Dip Around 1.1685‑1.1705

• Why it matters:
• Historically, the EUR/USD pair respected this range after the December‑2025 pullback.
• Fibonacci retracement (61.8 % level) aligns at ~1.1695.
• Oscillators (RSI 38, Stochastic 45) indicate oversold conditions.

• Entry strategy:

1. Place a primary buy order at 1.1690.
2. Add a secondary order at 1.1685 if price breaks the first level but shows a quick reversal (bullish engulfing candle).
3. Set a stop‑loss 30‑40 pips below entry to protect against a deeper retrace.

2.2. Immediate Resistance – 1.1750‑1.1765

• Potential bounce: A short‑term rally to this zone could act as a springboard for the next breakout.
• Signal check: Look for a bullish pin bar or a break above 1.1765 confirmed by a 20‑period EMA crossover.

2.3. Breakout Target – 1.18‑1.20+

• 1.18: First major psychological barrier; crossing it signals a shift from range‑bound to trend‑following behavior.
• 1.20: Historical high from mid‑2024; a sustained close above this level could trigger algorithmic buying and attract long‑term investors.
• Projected timeline: If the dip holds and the euro’s fundamentals stay favorable, a breakout could materialize within 2‑4 weeks.

---

3. Fundamental Drivers Shaping the Forecast

1. Eurozone Economic Outlook

• Q4 2025 GDP growth revised to +0.7 % QoQ, driven by strong manufacturing exports to the U.S. and Asia.
• ECB’s commitment to a data‑driven approach reduces surprise rate cuts, supporting EUR stability.

2. U.S. Monetary Policy Divergence

• Fed’s July 2025 “no‑rush” stance hints at a possible rate cut in Q2 2026, weakening the USD.
• Recent ISM Manufacturing PMI (49.8) signals a modest slowdown, feeding into dollar‑sell pressure.

3. Geopolitical Risks

• Ongoing trade negotiations between the EU and the UK are progressing, potentially unlocking €10 bn of cross‑border services.
• No major geopolitical shocks in the middle East have emerged, limiting safe‑haven demand for the USD.

4. Seasonal Patterns

• Historically, January sees higher volatility in EUR/USD due to year‑end portfolio rebalancing.
• The “January effect” frequently enough benefits the euro when U.S. equity markets underperform.

---

4. Buy‑the‑Dip Strategy: Step‑by‑Step Execution

1. Pre‑Trade Checklist

• Verify that EUR/USD is trading within the 1.1685‑1.1705 window.
• Confirm RSI < 40 and MACD histogram turning positive.
• Ensure no major news events (e.g., ECB speeches) are scheduled in the next 2 hours.

2. position sizing

• Risk 1‑2 % of account equity per trade.
• For a $10 000 account, a 30‑pip stop‑loss translates to a position of 0.07 lots (≈$30 risk).

3. Order Types

• Use limit orders at 1.1690 and 1.1685 to capture the dip without chasing price.
• Set a trailing stop of 25 pips once price reaches 1.1740 to lock in gains.

4. Exit Plan

• Partial profit target: Close 50 % of the position at 1.1760.
• Full profit target: Close remaining 50 % at 1.1805 or the next strong resistance level (1.1850).
• Stop‑loss adjustment: If price breaks above 1.1765, move stop‑loss to break‑even.

---

5. Risk Management & Scenario Planning

Scenario	Expected Move	Action
Dip deepens below 1.1660	Potential bearish reversal	Tighten stop‑loss to 1.1655; consider a short‑term sell if MACD turns negative.
Immediate bounce to 1.1760	Quick profit opportunity	Scale out 30 % of the position at 1.1760; trail stop for the remainder.
Breakout beyond 1.18	Bullish momentum	Add to the position with a smaller size; set new target at 1.1950‑1.20.
Unexpected high‑impact news (e.g., U.S. CPI surprise)	Volatility spike	Exit all positions or shift to a tight range‑bound strategy until market settles.

---

6. Practical Tips for traders (Jan 2026)

• Utilize Multi‑Timeframe Confirmation:
• Daily chart for trend direction, 4‑hour chart for dip zone, 1‑hour for entry timing.
• Leverage Economic Calendars:
• Flag the Eurozone CPI release (Feb 2026) and U.S. non‑farm Payrolls (Mar 2026) as potential catalysts for larger moves.
• Monitor Correlated Pairs:
• EUR/GBP and USD/JPY often mirror EUR/USD sentiment; divergences can signal hidden risk.
• Adopt a “Risk‑Reward” Mindset:
• Aim for a minimum 1:2 RR on each trade (e.g., 30‑pip risk vs. 60‑pip reward).
• Stay Updated on Central Bank communications:
• Minute‑by‑minute monitoring of ECB President’s speeches can provide early clues about policy shifts.

---

7.Case Study: EUR/USD Performance After the December 2025 Dip

Date	Opening Price	Closing Price	% Change	Commentary
15‑Dec‑2025	1.1812	1.1709	‑0.87 %	Euro weakened after weaker German industrial production data.
20‑Dec‑2025	1.1705	1.1730	+0.21 %	Short‑term bounce on positive ECB sentiment.
02‑jan‑2026	1.1724	—	—	Current level sits within the identified buy‑the‑dip zone.

Takeaway: The pair respected the 1.1685‑1.1705 support during the December pullback,then resumed an upward trajectory within two weeks—mirroring the pattern expected for the January 2026 breakout.

---

8.Summary of Actionable Points

• Target entry: 1.1685‑1.1705 (buy the dip).
• Primary resistance: 1.1750‑1.1765 (partial profit).
• Breakout zone: 1.18‑1.20+ (trend continuation).
• Risk management: 30‑pip stop, 1‑2 % account risk, trailing stop after 1.1740.
• Watchlist: Eurozone CPI (Feb 2026), Fed Q1 policy decision (Mar 2026), ECB governor speech (Jan 2026).

By aligning technical signals with fundamental fundamentals and applying disciplined risk controls,traders can capitalize on the EUR/USD dip in early January 2026 and position themselves for the anticipated breakout toward 1.20 and beyond.