The EUR/USD has dropped to a new weekly low of about 1.1740 as the US Dollar remains stable. Although the US Dollar index hit a weekly high near 98.25, most members of the Federal Open Market Committee (FOMC) support interest rate cuts if inflation decreases as expected. The FOMC minutes highlighted the importance of returning to a neutral policy to avoid job market issues. The CME FedWatch tool is predicting a 50 basis points cut in interest rates by the Fed in 2026. In contrast, the Eurozone’s activity is subdued, with the European Central Bank (ECB) likely to keep interest rates steady, as Eurozone inflation stays close to the 2% target.

Technical Analysis Overview

Currently, EUR/USD is trading at 1.1744, above a rising 20-day EMA at 1.1724, showing a positive short-term trend. The RSI is at 58, indicating strong momentum. Although there has been a decline from recent highs, things look encouraging as long as the price remains above the 20-day EMA. The Federal Open Market Committee meets eight times a year to discuss economic conditions. The FOMC Minutes, published three weeks after a policy decision, can impact the US Dollar, often with market reactions being delayed as traders await the information. With EUR/USD around 1.1740, we are seeing a clear standoff between central banks as we move toward 2026. The Federal Reserve is openly discussing interest rate cuts to support the US job market, while the ECB appears ready to maintain its current stance for now. This difference in policy will be central in the upcoming weeks. The November 2025 jobs report showed US payrolls grew by just 150,000, below expectations, giving the Fed more justification to ease its policies. With US inflation dropping to 2.8% in recent readings, there is minimal pressure for the Fed to remain aggressive.

Eurozone Stability and US Policy

On the other hand, the Eurozone looks more stable, which supports the Euro. Recent Eurostat data shows inflation steady at 2.1%, close to the ECB’s target. This reduces any immediate need for the ECB to consider rate cuts, creating a strong case for a stronger Euro compared to the Dollar. From a trading perspective, this suggests favoring bullish strategies on the EUR/USD. The key support level is 1.1724; as long as we stay above it, buying call options with strikes above the 1.1800 resistance could be wise. The low trading volume at the year’s end often leads to lower implied volatility, making options appealing. Historically, after the aggressive rate hikes of 2022 and 2023, a shift to easing policies has weakened the Dollar. Current market expectations, with indications of at least two rate cuts in 2026 from the CME FedWatch tool, support this view. Thus, preparing for a possible increase in EUR/USD in early January seems reasonable. Traders should be aware that the pair is having a tough time moving up. A drop below the 20-day moving average at 1.1724 would suggest that this bullish outlook may be too early, prompting a likely period of consolidation. The first full trading week of January 2026 will be crucial to see if buying interest returns with stronger market participation. Create your live VT Markets account and start trading now.

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