Title: Euro Declines Against US Dollar Amid Rising Risk Aversion and Looming Technical Support Levels
Author: TradingPedia Staff
Published on: December 29, 2025
Original Article Credit: www.tradingpedia.com
As markets head into the final days of 2025, the euro (EUR) has continued to weaken against the US dollar (USD), undermined by a growing wave of risk aversion gripping global investors. Amid economic uncertainty, persistent geopolitical unrest, and anticipation surrounding key macroeconomic data releases, the single currency has come under increased pressure. Selling interest has gradually built around the EUR/USD pair, pushing it closer to important technical support levels as traders reduce exposure to riskier assets.
This article explores the key factors driving the recent softness in the euro, analyzes the technical setup of the EUR/USD pair, and looks ahead at possible scenarios for the near-term performance of Europe’s common currency in relation to the greenback.
Macroeconomic and Risk Sentiment Overview
One of the primary reasons behind the euro’s decline is a noticeable increase in risk-off sentiment across global equity and bond markets. Several developments are contributing to this shift:
– Institutional and retail investors are moving towards safe-haven assets, such as the US dollar and US Treasuries, amid rising concerns about sustained global growth in 2026.
– The uncertain geopolitical landscape, particularly tensions in Eastern Europe and the Middle East, has acted as a catalyst for market participants to seek more stable assets.
– Disappointing corporate earnings reports and downward revisions of economic forecasts in major economies have led to increased volatility in global stock indices.
– The recent uptick in US economic data, including robust consumer spending and durable goods orders, has boosted expectations that the Federal Reserve might hold interest rates higher for longer, strengthening the US dollar in the process.
These factors have combined to exert downward pressure on risk-sensitive currencies such as the euro, weakening its appeal compared to the relative safety of the greenback.
European Central Bank Policy Outlook
Further pressuring the single currency is the divergence in interest rate policy expectations between the European Central Bank (ECB) and the Federal Reserve. While both central banks have spent much of 2025 battling inflation, their respective approaches moving forward are projected to differ:
– The ECB has hinted that it could begin cutting interest rates in the first half of 2026 if disinflationary trends continue.
– Euro area inflation has dropped closer to the ECB’s 2 percent target, providing justification for a potential shift toward more accommodative monetary policy.
– Recent Eurostat figures have shown declining consumer and business confidence across the eurozone, amplifying the need for policy stimulus to restimulate growth.
– In contrast, Fed officials have maintained a hawkish stance amid ongoing strength in the US labor market and persistently sticky core inflation indicators.
This growing policy gap has made the euro less attractive relative to the dollar, prompting flows out of the single currency.
Technical Analysis of EUR/USD Price Action
From a technical standpoint, the EUR/USD currency pair has shown signs of sustained bearish momentum. After failing to establish support above the 1.1000 psychological level earlier in December, price action has shifted downward, moving towards key short-term support zones. Analysts and traders are now closely monitoring several important technical levels as potential inflection points.
Key Technical Indicators and Levels:
– The pair is now testing support near the 1.0850–1.0870 range, which previously acted as resistance in November before a brief breakout.
– A clean break below the 1.0850 support zone could open the door toward the next major support level at 1.0790, coinciding with the 200-day Simple Moving Average (SMA).
– On the upside, resistance is located in the 1.0930–1.0950 area, representing prior short-term swing highs and the 50-day SMA.
– RSI (Relative Strength Index) on the daily chart has slipped into bearish
Read more on EUR/USD trading.