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The euro just broke through 1.18 against the dollar. Moreover, it briefly touched 1.20 before pulling back. If you’re trading forex right now, this move matters—whether you’re long, short, or sitting on the sidelines.
Here’s what’s actually driving this rally and what to watch next.
What Just Happened to EUR/USD
EUR/USD surged from around 1.10 in early January to above 1.18 this week. That’s an 800-pip move in roughly four weeks. Additionally, the pair briefly tested 1.20 before finding resistance.
Key levels right now:
- Current price: ~1.1830
- Recent high: 1.2000 (rejected)
- Support: 1.1800-1.1810
- Major support: 1.1650-1.1700
Therefore, we’re at a critical juncture. The pair either consolidates here before another leg up, or we see a deeper correction back toward 1.16.
Why the Euro Is Strengthening
This isn’t random price action. Several factors are converging simultaneously.
Dollar Weakness Dominates
The US Dollar Index (DXY) hit a four-year low last week. Consequently, all dollar pairs moved sharply. Moreover, concerns about US fiscal policy and Federal Reserve independence continue weighing on the greenback.
Kevin Warsh nomination: President Trump nominated Kevin Warsh as next Fed Chair to replace Jerome Powell in May. While some see this as dollar-positive long-term, uncertainty about Fed independence persists. Therefore, the dollar remains under pressure despite the hawkish appointment.
ECB Inflation Concerns
Eurozone inflation dropped to 1.7% in January from 2.0% in December. However, the strong euro is now causing concern within the European Central Bank. Some officials worry that currency strength could push inflation further below target.
What this means: If EUR/USD continues rising, the ECB might signal concern or even intervention. Consequently, traders are watching 1.20 as a potential line in the sand.
Technical Breakout Momentum
EUR/USD broke above long-term resistance around 1.15. Additionally, the move gained momentum as stop losses triggered above 1.17. Therefore, technical traders piled in, accelerating the rally.
Furthermore, the traditional correlation between EUR/USD and short-term rate differentials has virtually disappeared according to ING analysts. Consequently, the pair is more sensitive to technical levels and dollar-side weakness than usual.
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What Traders Are Doing Right Now
Momentum traders: Riding the uptrend with trailing stops. Moreover, they’re buying dips to 1.1800 as long as support holds.
Mean reversion traders: Looking for short entries near 1.20 with tight stops. Additionally, they’re betting the rally is overextended.
Range traders: Waiting for clearer direction. Therefore, they’re sitting out until price establishes a new range or continues trending.
Smart money: Likely taking profits after the 800-pip run. Furthermore, they’re waiting for pullbacks before re-entering longs.
The question isn’t whether EUR/USD will continue rising forever—it won’t. Instead, the question is whether we consolidate here or correct deeper before the next move.
Key Events This Week
Several catalysts could trigger the next major move:
Wednesday: Eurozone flash inflation data (already released, showed 1.7%) Thursday: US ISM Services PMI Friday: US Non-Farm Payrolls
Additionally, any comments from ECB officials about currency strength will move markets. Therefore, watch for headlines about the strong euro impacting inflation targets.
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Trading the Current Setup
If you’re bullish EUR/USD:
- Wait for pullback to 1.1750-1.1800 before entering
- Use stops below 1.1700
- Target 1.1950-1.2000 zone
- Scale out of positions as price approaches 1.20
If you’re bearish EUR/USD:
- Wait for rejection at 1.1950-1.2000
- Use stops above 1.2050
- Target 1.1700-1.1650 on correction
- Don’t fight the trend—trade pullbacks, not reversals
If you’re undecided:
- Sit out until clearer direction emerges
- Set alerts at 1.1750 (support) and 1.1950 (resistance)
- Let price show its hand before committing
Moreover, position sizing matters more than ever during volatile periods. Therefore, use appropriate lot sizes and never risk more than 2% per trade.
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What Could Change Everything
ECB intervention talk: If officials signal concern about euro strength, the pair could reverse sharply. Consequently, verbal intervention alone might cap gains near current levels.
US data surprises: Strong US employment or inflation data could strengthen the dollar. Therefore, Friday’s NFP report is critical.
Geopolitical developments: Easing US-Iran tensions have already impacted oil. Additionally, any major geopolitical shift affects risk sentiment and currency flows.
Fed communication: Comments from Kevin Warsh or current Fed officials about policy direction will move the dollar. Furthermore, any clarity on Fed independence concerns could trigger dollar strength.
The setup is clear: EUR/USD is in a strong uptrend, but it’s approaching levels that could trigger resistance or intervention concerns. Therefore, trade with defined risk and be ready to adapt quickly.
Don’t chase the move at current levels. Instead, wait for your setup, execute with discipline, and manage risk appropriately. That’s how professionals approach volatile markets like this.
