Euro to USD rebound momentum is strong: technical support for upward movement, policy divergence adds momentum

The EUR/USD has recently performed strongly, with multiple positive signals on the technical front. On Friday morning, the currency pair traded around 1.1755, firmly above the 100-day exponential moving average (EMA) at 1.1635, maintaining a medium-term bullish pattern. The Relative Strength Index (RSI) has risen to 59.8, confirming that the price momentum continues to strengthen, and it has not yet entered overbought territory, leaving room for further gains.

Technical Outlook: Bollinger Bands Narrowing, Buying Opportunities Emerge on Dips

From the daily chart perspective, EUR/USD maintains good interaction with the middle band of the Bollinger Bands (1.1738), while the narrowing of the bands indicates that volatility has begun to decline after the previous rebound. The upper band at 1.1820 becomes the first key resistance level for this upward move. A daily close above this level could signal a continuation of the rally. Conversely, if a pullback occurs and the price falls below the middle band, the lower band around 1.1655 will serve as an important support level.

Overall, the technical logic is clear: as long as EUR/USD stays above the 100-day EMA, the medium-term upward channel remains valid. Buying on dips before volatility expands is currently a more prudent trading approach.

Policy Outlook: Divergence Among Central Banks as a Key Driver

The European Central Bank (ECB) announced in its December monetary policy meeting that interest rates would remain unchanged, but more importantly, its forward guidance is crucial. President Christine Lagarde emphasized a “meeting-by-meeting” data-driven approach, meaning the ECB will not lock in future rate paths prematurely, providing tangible support for the euro’s defense. Although market expectations suggest rates may stay at current levels until 2026, the ECB’s deliberate flexibility signals a cautious stance to the market.

On the other hand, the Federal Reserve’s situation is quite different. The market widely expects U.S. President Trump to nominate a successor more inclined toward easing to replace Chair Powell (whose term ends in May). Trump has even explicitly stated that he hopes the new chair will maintain low interest rates and will not “go against his opinions.” These remarks have undoubtedly raised concerns among investors about the Fed’s independence, exerting downward pressure on the dollar.

Market Expectations: Policy Divergence Benefits EUR/USD

The relatively conservative stance of the ECB contrasts sharply with the potential political interference facing the Fed, and this policy divergence directly favors the EUR/USD upside. Although some economists remain cautious about the interest rate outlook, the current policy environment indeed provides favorable tailwinds for this currency pair.

In summary, EUR/USD has a solid technical foundation combined with clear policy support. The key resistance at 1.1820 and support at 1.1655 are worth close attention. As long as the price remains above the EMA, the upward channel remains intact.