The EUR/USD has slipped from a two-month high of 1.1762 to about 1.1720. This pullback happens as differences in monetary policy between the European Central Bank (ECB) and the US Federal Reserve (Fed) affect the currency pair, even as the overall trend remains positive. **Monetary Policy Expectations** The Fed recently lowered interest rates and suggested there could be another cut by 2026. There are hopes for two more cuts, especially with economic adviser Kevin Hassett possibly replacing Jerome Powell, who supports lower borrowing costs. In Germany, inflation rose to 2.6% year-on-year in November, even though monthly prices dropped. In the US, an increase in unemployment claims suggests that the Fed may need to cut rates further to help the struggling labor market. Several Fed presidents will share their thoughts in public comments later today. The EUR/USD is pulling back after a recent 1.2% gain, now trading below the 1.1730 support level. Important support levels to watch are 1.1680 and 1.1615, while resistance is seen at 1.1762 and possibly at 1.1820. Speeches from Fed officials Anna Paulson, Jeff Schmid, and Austan Goolsbee could provide more insight into monetary policy. A key issue for us is the growing gap between central bank policies. The Fed aims to cut rates, while the ECB remains unchanged. We believe that the weakness of the US Dollar is a continuing trend, which should bolster the Euro in the weeks ahead. The recent dip in EUR/USD below 1.1730 looks more like a temporary pause rather than a trend reversal. **US Economic Outlook** Recent data supports our belief that the US economy is slowing down, which calls for further rate cuts from the Fed. The increase in initial jobless claims to 236,000 is notable, marking the highest rise in over four years. This figure is well above the previous average of below 220,000, indicating stress in the labor market. This situation will likely push the Fed to act, especially since markets expect at least two more rate cuts. In contrast, Germany’s inflation remains high at 2.6%, exceeding the ECB’s 2% target. This situation makes it unlikely for the ECB to cut rates anytime soon, widening the gap with the US even further. For us, this fundamental difference is a strong reason to anticipate a rise in EUR/USD in the medium term. For traders, this environment suggests that buying on dips may be a wise strategy. The pullback from the 1.1762 peak, prompted by overbought conditions, might be a good time to take bullish positions. We suggest considering buying call options with strike prices around 1.1800. Those with a less aggressive outlook could sell put options at support levels like 1.1680 to earn premium. Speeches from several Fed officials today could spark short-term volatility. If policymakers like Goolsbee and Schmid express more concern about the weakening labor data, it may support our view and push the EUR/USD higher. We’ll be listening for any dovish comments that reinforce the market’s expectation of a more aggressive easing cycle from the Fed. Create your live VT Markets account and start trading now.

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