EUR/USD: A Historical Lens on the Current 'Incremental Decline

The EUR/USD pair is trading in a state of suspended animation, testing a historical script of incremental declines. After snapping a four-day slide, it has rebuilt traction near 1.1720, but the rally has stalled. The key psychological level at 1.1700 remains a hard ceiling, and the immediate technical setup is one of compressed decision points. Support is stacked tightly just above that zone, with the nine-day EMA at 1.1713 aligning almost perfectly with the channel floor near 1.1710. The next major structural magnet lower is the 50-day EMA at 1.1648, a level that trend followers will watch closely for a break.

This is a classic setup for a "wait and reassess" market. The broader USD tone is softer, with the US Dollar Index slipping toward 98.60. More importantly, market pricing shows a high probability of inaction from the Fed, with a 79% probability of an unchanged decision in January. This caps USD upside and echoes the cautious, data-dependent mode seen in past cycles of gradual EUR strength. Momentum remains positive but not extreme, with the 14-day RSI at 61.63 indicating buyers are still defending pullbacks rather than distributing into strength.

Viewed through a historical lens, this is a familiar pattern. The pair is holding above a key ascending channel, which keeps the near-term trend bias constructive as long as that floor holds. But the tight clustering of support levels means a break below the 1.1710-1.1713 zone would force a rapid shift in the market's playbook. It would signal the move is no longer a simple pullback but a potential trend repair, with the 50-day EMA at 1.1648 becoming the immediate focus. The current footing is fragile, built on thin holiday liquidity and a market that is positioning for data rather than direction.

Historical Analogy: The 2022-2023 Range-Bound Test

The current setup bears a striking resemblance to the extended consolidation that gripped EUR/USD from late 2022 through early 2023. Back then, the pair traded in a defined range of roughly 1.05 to 1.15 for months, with price often jumping between key moving averages on thin holiday liquidity. The market was directionless, driven more by shifting expectations of the Fed's easing path than by fundamental momentum from either side of the Atlantic. This created a persistent state of uncertainty, much like the deep divisions within the Fed that are now being revealed in its own internal minutes.

Today, that same dynamic is re-emerging. The market is positioning into data, not direction, as seen in the compressed decision points around 1.1710-1.1713. This is the hallmark of a range-bound test: price reacts sharply at technical shelves but lacks the conviction to break decisively. The dominant technical backdrop is an ascending channel, but the tight clustering of support means a break below that floor would force a rapid shift, mirroring how the 2022-2023 range eventually collapsed on a break of its key moving averages.

The momentum indicators tell the same story. The current 14-day RSI at 61.63 signals active upside pressure and buyer defense, a dynamic that characterized that earlier period where RSI often oscillated between 40 and 60 without a clear trend. It's not a signal of euphoria, but of a market where dip-buying behavior is still alive. Yet, as the evidence from a separate desk shows, RSI can quickly retreat to neutral-bearish territory, as it did at 42.6 earlier in the week, leaving the door open for extra losses. This oscillation between bullish and bearish momentum is the essence of a range-bound test.

The bottom line is that the current pattern is not a new one. It's a replay of a familiar script where the Fed's cautious, data-dependent mode creates a stalemate. The outcome of such periods is rarely a smooth breakout. They typically end with a decisive break of the range's boundaries, often triggered by a shift in the Fed's internal calculus or a surprise in economic data. For now, the market is simply waiting for that catalyst to emerge from the current uncertainty.

Catalysts and What to Watch: Testing the Historical Script

The immediate test for the historical script is clear. The market is waiting for a decisive break in the compressed decision points. A move above 1.1700 is the first signal that the bullish structure remains intact. It would confirm that the ascending channel and the tight support cluster at 1.1710-1.1713 are still holding, allowing the trend to continue its corrective path higher. The next major target would be the psychological level at 1.1800, which aligns with a recent two-month high.

The more critical test, however, is what happens if the bulls fail. A close below the 50-day EMA at 1.1648 would signal a breakdown of the current trend. This level is not optional support; it is where trend followers reassess, and a break would force a rapid shift from a "trend with pullback" to a "failed breakout" narrative. The next major reference would be the three-week low at 1.1589, and then the 200-day SMA near 1.1560. This would validate the historical pattern of a range-bound test collapsing on a break of key moving averages.

The immediate catalyst is the US Nonfarm Payrolls (NFP) data release. A stronger-than-expected report could reignite USD demand, potentially invalidating the current "wait and reassess" dynamic. This would be the kind of surprise that can trigger a violent mean reversion, as seen in the past when data shifted the Fed's internal calculus. The market is already positioning into this data with thinner risk limits, making it a high-impact event.

Monitor the 14-day RSI for confirmation of momentum. A sustained move above 60 would signal active buyer strength and keep dip-buying behavior alive. Conversely, a drop below 50, as seen earlier in the week when it hit 42.6, would signal bearish engagement and limit recovery attempts. The mixed signals from the RSI-hovering around 61.63 on one read and near 47 on another-highlight the thin conviction in the current move. This oscillation between bullish and bearish momentum is the essence of a range-bound test, and the next data point will determine which side takes control.