EUR/USD is currently weak, trading at four-week lows below 1.1700 due to a strong US Dollar. Traders are paying close attention to US economic data and the situation in Venezuela. Despite heightened geopolitical tensions following the US intervention in Venezuela, market sentiment remains largely unaffected. Asian stocks have risen, and European markets are expected to open slightly higher.

Impact of US Economic Data

The US Dollar has started 2026 on a strong note, thanks to positive US home sales and jobless claims figures. These data support the Federal Reserve’s cautious approach to easing amid ongoing inflation. The US ISM Manufacturing PMI is likely to show a small improvement, and December’s Nonfarm Payrolls report is crucial to gauge the strength of the US labor market. EUR/USD may decline further, as technical indicators suggest bearish trends. Support levels for the pair are around 1.1670, with additional support near the 50% Fibonacci retracement at 1.1650 and at 1.1615. A rise above 1.1715-1.1720 could help alleviate some downward pressure. The ISM Manufacturing PMI is essential for measuring US factory activity; a reading above 50 indicates growth, which is positive for the USD, while below 50 suggests contraction. The ISM Manufacturing Employment Index is also significant for assessing the US labor market. As 2026 begins, the US Dollar strengthens, pushing EUR/USD below 1.1700 for the first time in four weeks. Late 2025 saw unexpectedly strong US home sales and jobless claims, leading to a reevaluation of a quick Federal Reserve easing cycle. The likelihood of a rate cut in March 2026, as per futures markets, has dropped from over 75% to just below 60% in the past week. Although US actions in Venezuela are noteworthy, financial markets are currently focused elsewhere. The spotlight is on the US economic calendar, which will offer crucial insights into the Fed’s future moves. This week’s data, especially the labor market report, is vital for determining if the economy can sustain higher interest rates.

Key Upcoming Market Events

Traders should pay close attention to today’s ISM Manufacturing PMI, as it may provide a short-term signal. A slight improvement to 48.3 is expected for December 2025, but if it surprises above 50, it would signal expansion and likely lead to more USD buying. This could make purchasing short-term EUR/USD put options a smart move for those expecting further declines. The highlight will be Friday’s Nonfarm Payrolls report, with economists predicting an increase of about 165,000 jobs. A number significantly higher could reinforce the Fed’s cautious position and might push EUR/USD to test its next major support at 1.1650, aligning with the 50% Fibonacci retracement from the November-December rally last year. Given the potential for significant price movements after Friday’s jobs report, implied volatility is rising. One-week implied volatility for EUR/USD has increased to 7.5%, indicating that options traders expect more fluctuations than before. This setting could favor strategies like straddles or strangles for those anticipating a breakout but uncertain about the direction. Technically, the momentum remains bearish, with indicators like the RSI nearing oversold levels but not yet reversing. A failure to regain the 1.1720 area suggests that any upward movement may be temporary. Thus, traders should view any rallies as opportunities to position for further declines, targeting the support zones at 1.1650 and possibly 1.1615. Create your live VT Markets account and start trading now.

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