Euro Outlook Hinges on Upcoming Data Amid Policy Divergence Pressures

Key Takeaways:

• EUR has entered a corrective phase as earlier gains fade, with policy stability no longer enough to offset shifting global dynamics.

• The Fed and BoEs higher-for-longer stance is widening yield differentials against the euro, undermining its relative appeal.

• CPI and unemployment this week will decide whether the ECB can stay less dovish—hotter inflation and a firm labor market could help EUR find a floor, while soft data risks deeper downside.

Market Summary:

The euro has extended its recent pullback against major peers, trading with a weaker bias as it consolidates following a robust rally throughout 2025. The single currency recorded significant gains last year, with EURUSD appreciating more than 15% and EURGBP advancing nearly 7%. This strength was underpinned by a period of relative stability in European Central Bank monetary policy and economic performance within the Eurozone that largely met market expectations.

However, the currency's momentum has faded into the year-end as dynamics shifted. Major global central banks, notably the Federal Reserve and the Bank of England, have signaled their intent to maintain policy rates at elevated levels to address persistent domestic inflationary pressures, often amid stronger-than-anticipated economic data. This growing policy divergence has removed a key pillar of support for the euro, leaving it vulnerable to downside pressure as yield differentials move against it.

Market focus now turns squarely to key Eurozone data releases for near-term direction. Wednesday's Consumer Price Index (CPI) reading and Thursday's unemployment report will be critical in assessing the bloc's economic resilience and inflationary trajectory. A combination of hotter-than-forecast inflation and an improving labor market would strengthen the case for the ECB to maintain a less dovish stance relative to its peers. Such an outcome could provide the catalyst for the euro to find a floor and potentially resume its broader bullish trend. Conversely, softer data would likely exacerbate the current corrective phase, reinforcing the headwinds from broader central bank policy divergence.

Technical Analysis

EURGBP, H4:

The EURGBP pair has accelerated its technical pullback, with selling pressure intensifying following a decisive breach below its established downtrend channel. This breakdown signals a reinforcement of the current bearish phase, suggesting scope for further downside exploration in the near term.

Momentum indicators align with this weakened price structure. The Relative Strength Index has declined into oversold territory, which can sometimes precede a short-term consolidation, yet it also reflects the intensity of the recent selling pressure. Concurrently, the Moving Average Convergence Divergence histogram was rejected at the zero line and continues to edge lower, a clear confirmation that bearish momentum remains predominant. This technical configuration supports a continuation of the bearish bias.

However, the pair is now approaching a critical juncture. It is nearing a well-defined historical support level that has provided a reliable floor on multiple prior occasions. This zone represents a key technical inflection point. A firm hold above this support could catalyze a technical rebound as the oversold RSI condition is relieved. Conversely, a sustained break below it would represent a significant structural deterioration, invalidating previous basing patterns and likely opening a path for a deeper corrective move. The market's behavior at this support level will therefore be instrumental in determining whether the pair consolidates its losses or extends the decline.

Resistance Levels: 0.8725, 0.8765

Support Levels: 0.8605, 0.8530