In 2025, the euro staged a remarkable comeback, delivering what markets dubbed the "European Renaissance." Against all expectations following years of sluggish performance, the common currency mounted a serious challenge to dollar dominance, emerging as the undisputed star of foreign exchange markets with a 13.3% annual gain.
This impressive rally wasn't merely numerical—it represented tangible evidence of Europe's economic transformation through pragmatic policy adjustments. What analysts had previously dismissed as "less bad" economic prospects materialized into genuine investor confidence.
The 2026 Reversal: A Shifting Landscape
As the new year dawned, market dynamics underwent a dramatic shift. The euro's vigorous rebound against the dollar abruptly stalled at the critical 1.18 threshold, which now stands as an impenetrable barrier despite repeated attempts by bullish traders.
Current order flow analysis reveals concerning patterns—market activity shows distribution rather than accumulation characteristics. Savvy investors appear to be quietly offloading euro positions rather than building new ones. Even temporary bursts of buying activity fail to sustain upward momentum, suggesting fundamental weakness in the euro's position.
Technical Crossroads: The 1.18 Battleground
Two key technical levels demand attention:
- 1.18135 (Yesterday's VWAP): This price point reflects the average trading cost from the previous session. Failure to breach this level signals persistent seller control.
- 1.1806 (Today's VWAP): The current session's average trading cost serves as another resistance marker.
These levels currently function as formidable resistance. A decisive break below the psychologically significant 1.18 level would confirm bearish continuation scenarios. Conversely, only sustained trading above VWAP benchmarks could challenge the prevailing negative sentiment.
Euro Futures: Changing Tides
Euro currency futures now face direct selling pressure, contrasting sharply with the previous twelve months' bullish trend. The dollar's resurgence, fueled by safe-haven flows, has altered the currency landscape as 2026 begins.
While 2025 saw the euro capitalize on pragmatic policy shifts and improved economic outlooks, current conditions favor dollar strength. Meanwhile, the Canadian dollar shows potential for further gains, with analysts projecting up to 5% appreciation this year, supported by commodity price strength and political stability under the Carney administration.
Key Technical Developments
The four-hour euro/dollar futures chart reveals critical technical shifts:
- The upward parabolic SAR indicator that previously guided the euro higher has been decisively broken
- Current trading sits near the first lower standard deviation of the VWAP anchored to December 9, 2025's pivot low
- Historical patterns suggest further downside potential after such breakdowns
Volume profile analysis indicates 1.16945 as the next potential support zone should current levels fail. The technical picture currently favors continuation of the bearish trend rather than reversal.
Market Outlook
The euro/dollar's struggle at critical resistance levels reinforces the current bearish bias. Unless prices can close above 1.17425 on a four-hour basis, downside scenarios remain valid. Traders should monitor these key levels closely as the currency pair navigates 2026's uncertain waters.