EUR/USD is falling, trading around 1.1710 during Monday’s Asian session. The drop comes as the US Dollar gains strength, driven by safe-haven demand following the US capture of Venezuelan President Nicolas Maduro. President Trump announced a significant strike on Venezuela without seeking approval from Congress. His goal is to maintain order until a stable government can form. However, the Dollar’s rise may be limited by expected Federal Reserve rate cuts in 2026, and Trump may appoint a new Fed chair, likely leading to lower interest rates.

Euro Support Factors

The Euro might find support against the Dollar due to different monetary policies from the European Central Bank (ECB) and the Federal Reserve. The ECB held rates steady in December 2025, suggesting they may stay the same for now. ECB President Christine Lagarde mentioned uncertainty as a challenge for future guidance. In “risk-on” conditions, investors tend to seek higher-risk assets, boosting currencies linked to commodities, such as the Australian and Canadian Dollars. In “risk-off” times, safer investments like bonds and currencies such as the US Dollar, Japanese Yen, and Swiss Franc become more popular as investors prioritize security during uncertain times. Currencies from commodity-driven economies may perform well when risk appetite is high, while major currencies like the US Dollar often strengthen when investors are more risk-averse. The US’s actions in Venezuela have created a clear “risk-off” situation, driving money into safe havens like the Dollar. This has pushed the EUR/USD pair closer to the 1.1700 mark, a critical technical level we’ve monitored since it served as support late last year. This risk aversion is reflected in the markets, with the CBOE Volatility Index (VIX) rising over 35% to trade above 26 for the first time in months.

Dollar Strength and Market Strategies

Due to the ongoing uncertainty, the dollar is likely to stay strong in the coming days, which could push EUR/USD lower. The rise in WTI crude oil prices above $95 a barrel adds complexity, increasing inflation concerns while fears about global growth escalate. Traders may want to consider strategies to capitalize on this volatility and potential euro weakness, like buying near-term put options. However, we must keep an eye on the fundamentals that could quickly change this trend. The market is pricing in two interest rate cuts from the Federal Reserve in 2026, with fed funds futures showing an over 80% chance of the first cut by the March meeting. This expectation could become a significant challenge for the dollar once the current geopolitical tensions ease. This situation contrasts with the European Central Bank, which indicated in December 2025 that they intend to keep rates unchanged for an extended period. The growing policy gap between a dovish Fed and a neutral ECB could lend strong support to the euro in the medium term. Therefore, any significant drops below 1.1700 could present chances to prepare for a rebound later in the first quarter. Create your live VT Markets account and start trading now.

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