Euro-Dollar Faces February Setback

🎯 EUR/USD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

Image © Adobe Images

Euro-dollar is showing early signs of a February setback after January’s powerful rally, as traders weigh seasonal dollar strength and a near-term unwind of oversold conditions against still-supportive medium-term fundamentals.

EUR/USD is down 0.13% on the day at 1.1790, consolidating after peaking at a 2026 high of 1.2082 on January 27.

Immediate attention is on the upcoming decision from the European Central Bank, although the euro’s reaction is expected to be muted given the largely static nature of Eurozone monetary policy.

Ultimately, focus will remain on the dollar leg of the equation, where an unwind of oversold conditions and favourable February seasonals must be factored.

"In the near term, USD has room to retrace some of its recent losses because the Fed is in no rush to resume easing and the risk is that it cuts less than is currently priced in (50bps by year-end)," says Elias Haddad, Global Head of Markets Strategy at Brown Brothers Harriman.

From a price-action perspective, the euro’s advance has so far proven resilient, even as momentum has slowed.

"The fact that one of the fastest, largest advances on record has been followed by only a small pullback suggests scope for further gains," says Jeremy Boulton, a market analyst at Reuters.

Seasonal patterns, however, inject a note of caution into the outlook. "EUR/USD usually falls in February," warns Boulton’s Reuters colleague Martin Miller.

"It is not usually a good idea to go long EUR/USD in February and that will likely be the case in 2026 if key technical support gives way," he adds, pointing to historical tendencies for the dollar to find firm support during the month.

Miller notes that the recent setback from the 2026 peak of 1.2084 found support ahead of the 1.1768 Fibonacci level, which represents a 61.8% retracement of the January rise from 1.1572 to 1.2084 on EBS pricing.

"There is continued consolidation above this technical level, a breakdown below which would weaken the market structure and potentially shift the overall bias back to the downside," says the analyst.

🔒Lock in today's exchange rate to secure a future payment. You may also book an order to trigger your purchase when your ideal rate is achieved. Learn more.

Strategists at Bank of America say the dollar's comeback would align with their base-case view that dollar weakness in the coming months will be contained.

"We look for gradual (not rapid) USD depreciation, for both US and non-US reasons," says Alex Cohen, FX Strategist at Bank of America.

"The dollar has had a tumultuous January but has found its footing over the past week. We remain bearish but feel some of the hype over concepts such as ‘debasement’ and ‘sell America’ are overdone at this stage. Evidence thus far does not support these claims," Cohen adds.

Bank of America expects the dollar to grind lower against several G10 currencies, including the euro, suggesting that while near-term consolidation may persist, the broader EUR/USD trend remains biased higher unless key technical support levels give way.