13.02.202600:30 Forex Analysis & Reviews: The Dollar Will Not Give Up Its Initiative

Forex is processing information about the sharp increase in January employment to 130,000. Optimists are confident that the labor market situation has stabilized. Pessimists point to the worst hiring growth in 22 years, excluding recessions, in 2025. EUR/USD is unsure of its direction. Will the Federal Reserve continue to preemptively lower rates, or will the pause drag on until the end of the year? Donald Trump votes for the first option; however, as long as the central bank is independent, it is unlikely that the US president can influence its decisions.

Dynamics of American Employment

According to Credit Agricole, many negative factors are already priced into the US dollar. Therefore, there is a high risk that it will react sharply to good news while ignoring the negative. In this regard, an acceleration of American inflation could become a catalyst for selling EUR/USD. If consumer prices meet the forecast of 2.5%, the main currency pair is unlikely to budge.

The initiative, in any case, is coming from the US dollar. The euro, under the European Central Bank, increasingly resembles neither here nor there. According to governing council member Gabriel Makhlouf, we shouldn't rule out a cut in the deposit rate. But at the same time, we shouldn't rule out an increase either. Sixty-six of seventy-four Reuters experts believe borrowing costs will not change until 2027. The European Central Bank is in an ideal position, and a slowdown in inflation to 1.7% will not compel it to ease monetary policy.

Respondents predict a slowdown in GDP growth from 1.5% in 2025 to 1.2% in 2026 and up to 1.4% in 2027. They believe that consumer prices will stabilize around 1.7% in the first quarter, then rise to 1.9% in the second quarter, after which they will anchor around this mark until 2027.

With such metrics, the ECB is essentially out of the game. The dynamics of EUR/USD depend on the Fed's judgments and U.S. macroeconomic data. Unless, of course, Donald Trump continues to threaten the independence of the central bank. In this regard, the reduced likelihood of the Fed easing monetary policy in April and June favors the US dollar.

Dynamics of Rate Change Expectations

Thus, from a fundamental perspective, a decline in EUR/USD is more probable than an increase in the main currency pair. However, to confirm this, investors prefer to wait for US inflation data. According to Credit Agricole, these figures are not so critical that they deter opening trades. Most of the negativity is already reflected in the dollar's exchange rate.

Technically, on the daily chart, the failure of the bulls to update local lows near 1.1930 will heighten the risk of a 1-2-3 reversal pattern. An internal bar may theoretically appear. At the same time, a decline in prices below the fair value at 1.1865 and the bottom of the internal bar at 1.1850 would be a reason to sell.