EUR/USD is on the rise, currently trading at about 1.1735, showing a daily gain of 0.10%. This increase is driven by a weaker USD, influenced by expectations of a dovish Federal Reserve and a steady outlook for the European Central Bank (ECB) on interest rates. Technical indicators suggest the EUR/USD could continue to climb, having surpassed the 1.1735 level, aligning with the 100-hour Simple Moving Average (SMA) and the 50% Fibonacci retracement level. The MACD and RSI are both pointing towards potential strength, with the next resistance at the 61.8% Fibonacci retracement.

The Euro and ECB Decisions

The Euro, used by 20 countries in the Eurozone, makes up 31% of global forex transactions. EUR/USD is the most traded currency pair, accounting for 30% of transactions. ECB decisions greatly impact the Euro’s value by managing interest rates to maintain price stability. Inflation data plays a crucial role in shaping ECB policy, influencing the Euro’s value through interest rate adjustments. Economic indicators, like GDP and PMIs, can strengthen the Euro, while trade balance data reflects export demand and currency valuation. Haresh Menghani, a market analyst with over ten years of experience, emphasizes these factors. Reflecting on the analysis from 2025, the expectation for a stronger EUR/USD was based on the differing outlooks between a dovish Fed and a more stable ECB. This trend has largely unfolded over recent months, especially after the Fed cut interest rates by 25 basis points late last year due to slowing growth.

Trading Strategies and Considerations

Recent data supports this view. The US Non-Farm Payrolls report for December 2025 showed a gain of only 90,000 jobs, falling short of expectations. This has intensified market beliefs that the Fed may pursue further easing in the first half of this year. As a result, the US Dollar Index has dropped from its 2025 highs and is now around 101.50. In the Eurozone, the ECB has held steady as inflation remains high. The final Consumer Price Index for December 2025 was 2.4%, above the central bank’s target, making rate cuts unlikely soon. The EUR/USD pair, previously struggling around the 1.1735 level, has since increased and is now stabilizing near 1.2150. With much of this policy divergence already reflected in the market, simply buying call options has become costly due to higher implied volatility. Traders should be wary of paying high premiums for basic bets. A more cautious strategy for the coming weeks would involve credit spreads, such as selling out-of-the-money put spreads. This allows traders to earn a premium while betting that the pair will stay above a critical level, like the 1.2000 mark. This method capitalizes on the upward trend without needing a sharp, ongoing rally. It’s also essential to stay alert for upcoming economic data that could disrupt this trend. Strong US retail sales or inflation reports could cause the market to reassess the Fed’s dovish stance, leading to a quick drop in EUR/USD. Thus, clearly defining risk for any bullish positions is crucial in the current climate. Create your live VT Markets account and start trading now.

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