EURUSD, DXY Forecast: US CPI and 2025 Trends

Key Events:

US Dollar Index (DXY): Holding above key support; potential for a 2025 rally remains
EURUSD: Rebounding above 1.04; parity risks on hold
US CPI: Core, m/m, y/y data due today
ECB Rate Decision: Scheduled for Thursday
Market Anticipation: Upcoming FOMC and BOJ meetings in focus

The current market consensus leans towards a slight uptick in monthly and yearly US inflation levels, a final 25 bp Fed rate cut in December, and elevated inflation risks for 2025. This aligns with expectations for a gradual decline in the pace of the monetary easing cycle, supporting the US Dollar alongside haven demand amid rising geopolitical uncertainties ahead of 2025.

Amid holiday volatility and heightened 2025 uncertainties, markets are hovering near extreme levels. EURUSD holds above the 1.04 support, DXY challenges the 107–108 resistance zone, and indices are pausing below record highs.

Central banks are setting their armors ahead of a Trump presidency in 2025, with his vows to implement drastic policies as soon as the term begins, between trade and political wars.

Technical Analysis: Quantifying Uncertainties

US Dollar Index Forecast: Monthly Time Frame - Log Scale

Source: Tradingview

Following the US Dollar’s primary uptrend since 2008, the current trend remains aligned within the mid-channel zone, supported by a rebounding RSI from the neutral 50 zone and a respected time cycle low.

While the broader outlook leans bullish, confirmation of the uptrend requires a decisive break above the 2023–2024 bearish channel and the 108-resistance zone. Such a move could push the DXY toward the channel’s upper boundary at 110.40 and 114, with a potential extension to the 120-resistance level.

A failure to break the upper border can trap the DXY movement back inside the yearlong bearish channel, between the 103 and 100 support zones.

US Dollar Index Forecast: 3Day Time Frame - Log Scale

Source: Tradingview

Zooming in, the DXY is retesting the upper boundary of the bearish channel, stretching from October 2023 highs to November 2024 highs, at 105.40 support. A break below 105.40 could lead to a decline toward 104.70 and possibly align the trend with the mid-channel at 103.

EURUSD Forecast: Monthly Time Frame - Log Scale

Source: Tradingview

Unlike the DXY, EURUSD remains far from the mid-channel zone of its primary downtrend from the 2008 highs. Bearish pressures dominate, with a break below 1.04 required to confirm further declines toward parity at 1.017 and 0.98.

On the upside, a firm break above 1.13 is necessary to extend the euro’s rally and challenge the primary downtrend, eyeing resistance at 1.15 and 1.2.

EURUSD Forecast: 3Day Time Frame - Log Scale

Source: Tradingview

Zooming in, EURUSD is holding above 1.04 support, a flag pattern target, and may be forming an inverted head-and-shoulders pattern as the RSI-14 rebounds from oversold levels last seen in October 2023. If the support holds and the reversal pattern is confirmed, EURUSD could revisit resistance at 1.07 and 1.0780, aligning with the flag pattern’s lower boundary. Breaking above 1.08 could extend the rally to 1.0870 and 1.0940. Downside risks as previously mentioned include a break below 1.04 and 1.033, which could push the pair toward 1.017 and 0.98.

--- Written by Razan Hilal, CMT on X: @Rh_waves and Forex.com You Tube

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