EUR/USD: FED minutes are putting pressure on the euro

KEY TECHNICAL ELEMENTS
The foreign exchange market is operating in an environment dominated by close scrutiny of the minutes of the US Federal Reserve, published last night. These discussions confirm a profound heterogeneity of positions within the FOMC, both on the pace and the magnitude of future monetary adjustments. While a majority of officials remain in favour of further rate cuts in 2026, these remain strictly contingent on a more convincing slowdown in inflation, while a significant number of members advocate for a prolonged period of maintaining the status quo in order to assess the cumulative effects of the easing already undertaken.

The minutes also highlight a more technical but crucial aspect for money markets: the decision to purchase short-term Treasury securities to stabilise bank reserves. Fed staff determined that these reserves had returned to the so-called "ample" range, a threshold deemed necessary to ensure smooth control of short-term interest rates. Officials emphasised the strictly operational nature of these purchases, intended to guarantee the proper functioning of the money market and without any impact on the direction of monetary policy. Jerome Powell had, in fact, reiterated this terminology during his press conference, highlighting the distinction between reserve management and macroeconomic stimulus.

This internal debate was reflected in the December decision, marked by a 25 basis point cut in the key interest rate, bringing it down to a range of 3.50% to 3.75%, despite several dissenting votes. The minutes reveal that even some proponents of the cut considered the decision "finely balanced," while others worried about inflation potentially becoming entrenched above the 2% target. The Fed thus acknowledges facing a double asymmetry of risks: persistently high inflation on the one hand, and a labour market showing gradual signs of slowing on the other. In this context, the future path of interest rates remains explicitly dependent on upcoming data.

In the foreign exchange market, this interpretation contributed to maintaining structural pressure on the dollar, already penalized in 2025 by monetary easing, budgetary concerns, and political uncertainty. The euro therefore maintains favourable momentum against the greenback, even though short-term movements remain constrained by low liquidity at the end of the year and investor caution ahead of the next major macroeconomic releases.

From a technical perspective, the EUR/USD is currently undergoing a controlled pullback towards its 20-period moving average, which remains upward sloping. This setup suggests a consolidation phase within an otherwise intact uptrend. As long as this dynamic support holds, the outlook remains constructive, with technical targets around 1.18 and then 1.19 in the medium term.

In the very short term, attention will be focused on the only US statistic of the day: the weekly jobless claims, due at 14:30 (CET), which could provide further insight into the state of the labour market and, indirectly, into the Fed's upcoming decisions.

MEDIUM-TERM FORECAST
Based on the key technical factors we have mentioned, our outlook for the EUR/USD pair is positive in the medium term.

Our entry point is $1.1736. The price target for our bullish scenario is $1.1919. To protect your invested capital, we advise you to place a stop-loss order at $1.1386.

The expected profit for this strategy is 183 pips, and the potential loss is 350 pips.