Euro outlook: EUR/USD breakout runs into history at 1.1900

• Bull pennant breakout confirmed
• 1.1900 acting as resistance
• USD pulled in opposite directions by policy and macro
• Momentum remains bullish

Summary

With the US dollar pulled between policy signalling and firmer macro data, momentum in FX has become less decisive. In EUR/USD, that tension has surfaced as hesitation emerges at 1.1900 following a bullish breakout.

Counterforces complicate the dollar view

The US dollar is being pulled in opposing directions, and that tension is becoming increasingly important for FX. Recent moves have been sharp, but conviction has been uneven, reflecting a market caught between policy signalling and macro fundamentals.

On the policy side, US Treasury Secretary Scott Bessent’s remarks earlier this month were read by markets as an acknowledgement that weakness in several Asian currencies, including the yen and the Korean won, had drifted out of line with fundamentals, implying some frustration with the extent of U.S. dollar appreciation. That interpretation was reinforced a week later by reports the New York Fed were conducting rate checks in USD/JPY, a move often seen ahead of outright intervention. 

Together, the sequence has strengthened the perception that U.S. authorities may be pursuing a softer dollar policy, helping to accelerate USD selling beyond Asia and into G10.

That backdrop has been compounded by renewed tariff brinkmanship from the Trump administration. Recent threats against Canada and South Korea arrived just days after tariff risks aimed at several European nations were de-escalated following a framework agreement on Greenland. The pattern has been familiar: abrupt escalation, selective targeting, and rapid reversals. Even when not enacted, the uncertainty generated has reinforced the ‘sell America’ narrative, with political risk acting as a clear USD negative.

Source: TradingView

But there is a clear counterforce. US macro momentum remains firm, and interest rate expectations are adjusting accordingly. Rate cut pricing for 2026 has been pared back as economic data continue to surprise to the upside.

Source: Atlanta Fed

The Atlanta Fed’s GDPNow model, which tracks real-time growth momentum based on incoming data, currently points to an economy running well above potential. At the same time, Citi’s U.S. economic surprise index, which measures whether data is beating or missing expectations, remains elevated.

Source: LSEG Workspace

Together, they highlight an economy generating more upside growth surprises than markets had anticipated. Even allowing for productivity gains and structural shifts linked to AI adoption, that backdrop raises upside risks to inflation and downside risks to unemployment, limiting how far dollar weakness can extend.

The result is a market defined by tension. Policy signals point towards tolerance of USD weakness, while fundamentals argue against chasing it indiscriminately. 

A bullish signal meets history

That tension is now playing out in EUR/USD, where a technically significant breakout has been followed by hesitation at a level with clear historical importance.

Source: TradingView

From a technical perspective, EUR/USD has delivered a decisive bullish signal, but one that comes with an important caveat. The bullish breakout last week from the bull pennant it had been coiling in was violent, as would be expected given the length of time the pair spent compressing.

However, the location where the breakout stalled was eye-catching, running into resistance just above 1.1900, a level that has history. EUR/USD failed to sustain gains above this zone in September last year, while repeated rejections were also seen during the second half of 2021. In that context, the lack of follow-through is not trivial, creating immediate doubt as to whether the move can extend.

The message from the oscillators remains bullish. RSI (14) is trending higher but is not yet overbought, pointing to building topside pressure. That signal has been reinforced by MACD, which has staged a bullish crossover of the signal line and continues to push higher. From that standpoint, momentum still favours buying dips and bullish breakouts. However, the inability to break decisively through 1.1900 warrants caution about getting too bullish around these levels.

A break and close above 1.1900 would be preferable, particularly above the September 2025 high, before adding to or initiating bullish positions. That would allow longs to be established above 1.1900 with a tight stop below, targeting initially 1.1990 where bears actively defended 1.2000 in 2022 before eventually being overwhelmed. A sustained break above 1.2000 would bring the May 2025 high at 1.2267 and the December 2020 high at 1.2350 into focus.

Should 1.1900 continue to repel bullish breakouts, the setup could be flipped with shorts established beneath the level with a stop above for protection, targeting 1.1800 initially with former pennant resistance another option after that. 

Busy calendar with a softer punch

Source: TradingView

Event risk this week remains elevated, but its ability to drive sustained moves looks diminished given the complex macro environment. On the European calendar, Q4 GDP estimates for several euro area nations are due Friday ahead of the aggregate EU release later in the session. Quarterly growth of 0.2% is expected, slowing from 0.3% in Q3 and leaving the annual pace at 1.2% versus 1.4% previously. German inflation data is also released Friday, with headline CPI expected to rise to 2.1% YY from 1.8% in December.

In the U.S., the focus is the Federal Reserve’s rate decision on Wednesday. With no updated projections and little chance of a move priced, the meeting itself may not generate outsized volatility. Instead, attention will centre on the statement and Jerome Powell’s tone, particularly around the labour market. Looming in the background, speculation that Rick Rieder could emerge as the next Fed chair continues to swirl, likely contributing to dollar weakness late last week.

U.S. producer price data on Friday will help shape expectations for the Fed’s preferred underlying inflation gauge, the December PCE deflator, while weekly jobless claims on Thursday may be distorted by the Martin Luther King Jr public holiday. Consumer confidence data and auctions of two, five and seven-year Treasury notes round out a busy but largely secondary calendar.