Euro hedging costs for U.S. assets are falling quickly, which is helping the EUR/USD exchange rate as the Fed gets ready to ease monetary policy. We expect the pair to stay strong around 1.1630/40 and may even reach 1.1700–1.1730. Currently, eurozone bond investors can hedge their U.S. risks for only 1.82% per year, down from 2.45% in July. This is important for those looking to gain an extra 150 basis points by investing in U.S. markets. As we anticipate further Fed rate cuts, these costs should continue to drop, pushing EUR/USD higher in 2026 due to eurozone dollar sales.

Eurozone Calendar Updates

Today’s eurozone calendar is light, featuring a speech from the ECB about global imbalances. This discussion will focus on the euro’s role internationally and suggest reforms to take advantage of a multipolar world. Current trends indicate that EUR/USD will trade between 1.1700 and 1.1730, with support around 1.1630/40. Economic indicators are likely to change, with the Michigan Consumer Sentiment Index expected to rise to 52. Statistics Canada is also set to release information indicating a likely increase in November’s Unemployment Rate to 7%. These factors could affect the trading situation. The significant drop in hedging costs is a big boost for the euro. European investors can now hedge their dollar exposure at only 1.82% annually, a big reduction from the 2.45% seen in July 2025. This makes purchasing U.S. bonds and selling dollars forward more appealing, likely leading to a rise in the EUR/USD pair. This shift is closely linked to the likelihood that the U.S. Federal Reserve will start cutting interest rates soon. According to the CME FedWatch Tool, there’s over a 70% chance of a rate cut by March 2026. As this easing cycle approaches, we expect hedging costs to decrease further, encouraging movement of funds from dollars to euros.

Strategies For Derivative Traders

For derivative traders, this situation suggests they should prepare for upward movement in EUR/USD. Buying call options with strike prices around 1.1700 or 1.1730 is a smart way to take advantage of a possible breakout. These options provide a defined risk and exposure to anticipated gains into early 2026. Given the strong support at the 1.1630/40 area, selling cash-secured puts just below this level, such as at 1.1600, is another good strategy. With one-month implied volatility for the pair currently low near 5.8%, this approach lets traders collect premiums while the bullish outlook unfolds. This strategy can succeed if the pair goes up, stays the same, or only slightly drops. Upcoming economic data will be crucial to monitor, as it may speed up these trends. The preliminary Michigan Consumer Sentiment Index for December is expected to see a slight increase; however, any signs of weakness would support the case for Fed cuts. The softer Non-Farm Payrolls report from November 2025 has already contributed to the perception that the U.S. economy is cooling. Additionally, comments from the European Central Bank enhance a more positive long-term outlook for the euro. ECB officials, like Philip Lane, discuss the euro’s role in a changing world, providing a supportive narrative for a bullish stance on the euro against the dollar. Create your live VT Markets account and start trading now.

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