EURUSD Erased Weekly Gains as Dollar Strength Resurfaces—Is a Bearish Trend Taking Hold?

The euro pair has wiped out last week’s advances in a sharp reversal driven by renewed US Dollar strength. With the greenback rebounding on the back of Fed chair nominations and solid economic data, traders are now questioning whether last week’s euro gains have truly been erased permanently or if we’re witnessing a temporary pullback before the next move.

The Dollar’s Unexpected Revival

The catalyst for the dollar’s comeback appears straightforward on the surface: the nomination of Kevin Warsh as the next Federal Reserve chair has shifted market sentiment. However, scratching beneath the surface reveals a more nuanced picture. The prior weakness in the greenback lacked solid fundamental grounding in the first place. There was no compelling reason for the earlier strength in the euro, just as there’s no iron-clad case for the current dollar surge—yet the dollar is advancing regardless.

What’s changing the equation is the economic data. US metrics continue to strengthen across the board, particularly in labor market indicators. Jobless Claims figures suggest that job creation may be accelerating again, providing real backbone to dollar strength. The market is currently pricing in 55 basis points of interest rate cuts through year-end, but those expectations are vulnerable. Any surprise in economic strength could force a significant repricing of rate expectations lower, potentially extending the dollar’s gains well beyond the current move.

February and early March could prove decisive months for the greenback if the data stream remains robust. The Non-Farm Payroll report looms as the marquee data point this week, but numerous other top-tier releases should provide additional ammunition for dollar bulls. If numbers disappoint, the greenback could come under pressure, though the sell-off momentum likely won’t match the intensity of the previous weeks.

The Euro’s Struggle at the Psychological Line

On the other side of the pair, European Central Bank officials have begun expressing discomfort as the euro briefly pushed above the 1.20 psychological barrier last week. This level carries symbolic weight—ECB Vice President Luis de Guindos previously signaled that a sustained move above 1.20 would create complications for the central bank’s policy framework.

This week brings an ECB policy decision where the central bank is expected to maintain interest rates and keep its neutral stance intact. There’s a risk that policymakers could lean harder on euro-negative messaging, though such jawboning would lack fundamental justification given that recent economic surprises have actually favored the eurozone. Without deteriorating data to support it, explicit currency intervention through rhetoric could backfire and damage credibility.

Technical Landscape: A Clear Bearish Setup

Daily timeframe perspective:

The daily chart tells a distinctly bearish story. EURUSD successfully breached the 1.20 resistance but subsequently erased those gains following coordinated ECB jawboning and continued US economic resilience. A critical support zone sits near 1.18, where buyers traditionally step in with defined risk positions below to set up for countertrend advances. Bears, meanwhile, are calibrating for a break beneath support to accelerate selling pressure toward the 1.16 handle.

Four-hour timeframe perspective:

The four-hour chart reveals a pronounced downward trendline that currently defines the pair’s bearish momentum. In any pullback scenario, sellers will likely position near this trendline with stops positioned above it to maintain downside pressure into fresh lows. Conversely, buyers hunting for continuation rallies would need to clear this trendline decisively to regain the upper hand and push toward new cycle peaks.

One-hour timeframe perspective:

On the hourly chart, resistance clustering becomes visible around the 1.19 region, where the downtrend line intersects with intraday supply. This is the battleground where sellers typically stage their defense, targeting new lows. A clean break above 1.19 would signal that bulls have seized initiative and could extend to fresh highs. The red indicator line marks the average daily trading range for reference, providing context for expected volatility bounds.

The Week Ahead: Critical Data Points on the Horizon

Today: US ISM Manufacturing PMI kicks off the data week with forward-looking insight into factory activity.

Tomorrow: US Job Openings figures will add another piece to the employment puzzle.

Wednesday: The eurozone releases Flash CPI inflation data, while stateside we get ADP employment figures and the ISM Services PMI—a triple-header that could shift sentiment significantly.

Thursday: The ECB announces its policy decision and accompanying statement, while the US Jobs Claims report provides another labor market snapshot.

Friday: The week concludes with the headline Non-Farm Payroll jobs report and University of Michigan Consumer Sentiment survey, either cementing or challenging the current dollar momentum.

The question now is whether last week’s gains have been permanently erased or simply paused. The answer hinges almost entirely on whether the data continues to support dollar strength. If numbers roll in stronger than expected, we’re likely looking at an extended bearish phase for the euro. Softer readings could provide some relief, though the downtrend’s momentum suggests sellers currently control the narrative.