by Antonio Di Giacomo, Senior Market Analyst at XS.com
The euro resumed its downward trend against the dollar on February 16, 2026, falling below the 1.1850 level. The move reflects a combination of economic weakness in the Eurozone and reduced liquidity in global markets, which tends to amplify technical movements even in response to moderate catalysts. The common currency continues to struggle to sustain meaningful gains against a dollar that, although it has eased from its recent highs, still maintains structural support.
One of the key factors behind the pressure on the euro was the release of Eurozone Industrial Production data, which showed a 1.4% monthly contraction in December, while November’s figure was revised lower. On an annual basis, growth also slowed more than expected, confirming a loss of momentum in the manufacturing sector.
This weakness reinforces the perception that Europe’s economic recovery remains fragile and uneven across member states. The deterioration in industrial activity adds to forward-looking indicators that point to moderating business confidence and still subdued domestic consumption. Germany, the region’s main manufacturing engine, continues to face structural challenges linked to external demand and elevated energy costs, limiting the euro’s ability to attract short-term capital inflows.
On the U.S. side, the Consumer Price Index (CPI) recently showed a softer-than-expected reading, reigniting speculation about potential additional rate cuts by theFederal Reserve in 2026. However, the euro failed to capitalize on this development fully. Markets believe that even if the Fed eases policy later in the year, the U.S. economy will continue to show greater resilience than the Eurozone.Moreover, yield differentials between U.S. and European bonds continue to favor the dollar. Despite expectations of monetary easing in the United States, the European Central Bank also faces pressure to maintain an accommodative stance amid cooling economic conditions, which is reducing the euro’s relative appeal in carry trade strategies.
Monday’s session was marked by low liquidity due to market holidays, including Japan’s Lunar New Year and the United States’ Presidents’ Day. Such reduced participation often leads to more erratic, technically driven moves, in which smaller orders can generate disproportionate price swings in major pairs, including EUR/USD.
In this environment, speeches from officials at both the Federal Reserve and the The European Central Bank carry heightened importance. Investors are seeking clearer guidance regarding the timing and magnitude of potential interest rate adjustments. Any tone that is more hawkish or dovish than expected could break the recent trading range in which the euro has been confined.
In conclusion, the euro’s decline below 1.1850 reflects a combination of macroeconomic weakness in the Eurozone, low holiday-driven trading volumes, and an uncertain monetary policy narrative on both sides of the Atlantic. While softer U.S.
inflation could support rate cuts and limit further dollar strength later on, growth differentials and investor caution are currently keeping the euro under pressure. Upcoming economic data and central bank signals will be decisive in determining whether the common currency stabilizes or extends its bearish trend in the weeks ahead.