• The EUR/USD outlook remains soft as the dollar surges after a surprise decline in jobless claims.
• Concerns about the Eurozone’s growth and falling German yields keep the bias bearish on EUR/USD.
• Technically, a price below 1.1635 poses a risk of testing the 1.1550 level.

EUR/USD is trading with a mild downside bias as the dollar pares but largely holds recent gains around the 99.30 area on the DXY. Stronger-than-expected US data this week, combined with an upside surprise in Initial Jobless Claims, has pushed back expectations for the first Fed rate cut to June and September from earlier pricing of January and April.

Fed funds futures now assign about a 95% probability that the Fed will hold rates steady at the late January meeting, reinforcing carry support for the dollar while keeping EUR/USD under pressure.

The latest US labor signals point to still-resilient conditions. Initial jobless claims dropped to about 198k, less than the expected 215k and the previously revised 207k. This shows that layoffs are still limited despite strict policies.

That strength, along with worries about sticky inflation, makes it hard to ease right away and supports US yields compared to the Eurozone. Traders will look at December’s Industrial Production numbers and comments from Fed officials, including Governor Michelle Bowman, to reaffirm that the Fed is still patient and data-dependent.

The structural picture on the euro side remains softer. The European Central Bank is likely to lower rates sooner and by more than the Fed, as growth is slowing and inflation is cooling, giving policymakers more room to ease. German yields are also slowly declining. This shows divergence between EU and US growth and policies.

Broader risk sentiment is a swing factor but not yet euro-supportive. While geopolitical headlines and US political signals have somewhat stabilized risk, EUR/USD remains a risk-sensitive pair. In the absence of sustained risk-on and with US data outpacing the Eurozone, rallies in the euro are likely to be sold off, keeping the pair biased lower in the near term.

EUR/USD Technical Outlook: Bearish Momentum
 

(Click on image to enlarge)

EUR/USD 4-hour chart
 

After breaking the demand zone at 1.1610, the EUR/USD price is retracing slightly to retest the broken level, with limited upside. The price lies well below the key MAs, indicating a cushion for more losses.

However, the RSI is rising after hitting the oversold region. As long as the price remains below the 20-period MA at 1.1635 and the demand zone, the pair could lose further to test 1.1550 and 1.1500.

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