The Euro has increased by 0.3% against the US Dollar, ranking it as a mid-performing currency within the G10. This rise is mainly due to market attention on a likely dovish Federal Reserve, indicating weakness in the USD instead of strengthening the EUR directly. The final services PMI for the euro area was better than expected at 53.6. Germany’s PMI was at 53.1, and France’s was slightly above neutral at 51.4. Recent comments from policymakers have been mixed, focusing on inflation risks while the political scene in the euro area has improved. The bund/BTP spread has narrowed to 70 basis points, the lowest level since 2010.

Euro’s Rally

The Euro’s rally has taken it to the upper 1.16s, levels we saw in late October. If this trend continues, it may hit the mid-1.17s seen in early October. Momentum is on the Euro’s side, with the Relative Strength Index (RSI) above 60, similar to levels from mid-September. We expect the trading range to stay between 1.1620 and 1.1720. The Euro is strengthening against the Dollar primarily due to differing central bank outlooks. The latest US inflation data shows a rate of 2.8% for November, raising speculation about a more dovish Federal Reserve going into 2026. Meanwhile, the Eurozone’s core inflation has remained steady at 3.1%, keeping the European Central Bank more hawkish. Political risks in the Eurozone are decreasing, which is a boost for the currency. The spread between Italian and German 10-year bonds has tightened to 68 basis points, reflecting market confidence. This is a stark contrast to the European debt crisis of 2011-2012, when this spread was over 500 basis points, highlighting today’s stability.

Options Trading Opportunity

For options traders, the current upward momentum suggests that selling out-of-the-money EUR/USD put options could be a good strategy to earn premium. The lower political fragmentation, shown by the tight bond spreads, is keeping implied volatility down, making options cheaper. This may encourage strategies like bull put spreads to manage risk while taking advantage of the expected rise towards the mid-1.17s. We are now testing the upper end of the recent 1.1620 to 1.1720 range, with the RSI remaining strong above 60. Positive economic data, such as the final November Services PMI at 53.8, supports a potential breakout. Futures traders should pay attention to a sustained move above 1.1720, which could signal an opportunity to increase long positions. Create your live VT Markets account and start trading now.

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