EUR/USD Strategy Outlook 2026

Macro Context: A Late-Cycle Market Looking for New Anchors

By the end of 2025, markets had largely exhausted the marginal information content of central bank communication. Policy rates in both the United States and the Eurozone had moved decisively away from peak restriction, and forward guidance had become increasingly conditional.

“For investors, the question heading into 2026 is not whether central banks still matter, they do, but what matters more once policy direction is broadly known“.

Our assessment is that FX markets are entering a phase where relative growth performance and capital allocation decisions regain importance, particularly in G10 pairs where rate cycles are maturing. EUR/USD sits squarely at the center of that transition.

Trade Policy: A Persistent Drag, Not a Market Catalyst

The reintroduction of broad US tariffs in 2025 initially revived inflation concerns and injected volatility across rates and FX markets. Over time, however, these measures became embedded in baseline expectations.

From an investment standpoint, tariffs now function as:

• A structural headwind to global trade
  
• A second-order input to inflation
  
• A constraint on growth, rather than a directional signal

Absent further escalation, trade policy is unlikely to drive sustained FX trends in 2026. Markets have adjusted, priced the friction, and moved on.

Federal Reserve: Policy Flexibility, Growth Dependency

The Federal Reserve enters 2026 with policy no longer in restrictive territory and inflation closer to target. Rate cuts delivered in 2025 reflected both easing price pressures and a desire to preserve the expansion.

While the upcoming transition in Fed leadership adds uncertainty around communication and reaction function, policy outcomes remain bounded by macro realities:

• Inflation expectations are anchored
  
• The labor market remains resilient
  
• Financial conditions are accommodative

In this context, further easing would likely be reactive rather than proactive, driven by growth deterioration rather than political pressure.

For FX markets, this implies that USD direction will increasingly depend on US growth momentum, not rate expectations alone.

European Central Bank: Policy Stability, Growth Constraints

The ECB completed its easing cycle earlier and now operates in a holding pattern. Inflation dynamics are broadly consistent with target, but growth remains the binding constraint.

The Eurozone economy continues to face:

• Weak manufacturing activity
  
• Limited productivity gains
  
• Fragmented fiscal capacity

While labor markets have provided some cushion, investment and competitiveness remain key vulnerabilities.

For investors, the implication is clear: The ECB is unlikely to tighten in 2026, but policy stability alone is insufficient to drive sustained euro appreciation without a credible improvement in growth.

EUR/USD: Rates Narrow, Growth Decides

From a relative perspective, the “Fibre” reflects two opposing forces:

Supportive for EUR:

• Narrowing policy rate differentials
  
• Reduced US monetary policy premium
  
• Less asymmetric central bank risk

Supportive for USD:

• Stronger US growth trajectory
  
• Higher return on capital
  
• Deeper and more flexible financial markets

As rate differentials compress, growth and capital flows become the swing factors.

Our base case is not a structural regime shift, but a rebalancing of drivers. In this environment, EUR/USD upside is possible, but conditional.

Market Structure and Positioning

Technically, EUR/USD enters 2026 in an established uptrend, supported by long-term moving averages and higher lows. However, momentum has moderated, suggesting reduced conviction at current levels.

Key reference zones:

• 1.19–1.20: Long-term resistance and valuation friction
  
• 1.22–1.25: Requires either Eurozone growth surprise or US slowdown
  
• 1.15: Structural support
  
• 1.135: Trend invalidation level

Positioning dynamics suggest that upside extensions will require fresh macro justification, not technical momentum alone.

Investment Framework: Scenarios, Not Certainties

Base Case (55%)

• US growth gradually moderates
  
• Eurozone growth stabilizes but underperforms
  
• EUR/USD trades higher within a broad range (1.15–1.22)

Upside EUR Scenario (25%)

• US growth slows materially
  
• ECB benefits from fiscal coordination or investment rebound
  
• EUR/USD extends toward 1.25

Downside EUR Scenario (20%)

• US growth remains exceptional
  
• Risk sentiment deteriorates
  
• USD regains safe-haven appeal

Takeway from Levrata

A Market Looking Beyond Central Banks: Central banks are not fading from relevance, but their informational dominance is diminishing. In a late-cycle environment with stabilized policy rates, FX markets are rediscovering old fundamentals: growth, productivity, and capital returns.

“For EUR/USD in 2026, the opportunity lies not in betting against central banks, but in correctly identifying which economy converts stability into growth“.

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