The Euro (EUR) has risen by 0.4% against the US Dollar (USD), performing relatively well among the G10 currencies as the USD weakens. This increase is supported by stabilizing euro-US yield spreads, which have recently narrowed.

Euro-US Spread Correlation

There hasn’t been much new data recently, and comments from ECB’s Muller about future rate hikes have been neutral to slightly positive. The correlation between the EUR and spreads is improving, driven by fundamental factors, while risk reversals are stabilizing, adding more support to market sentiment. The EUR’s recent gains have turned around a possible downward trend below the 50-day moving average (MA) of 1.1654. This moving average has shifted between acting as support and resistance throughout the year. Currently, the local support level is at 1.1620, and resistance is at 1.18, with market expectations for the EUR to range between 1.1650 and 1.1750 in the near term. The FXStreet Insights Team shares selected market insights from recognized experts. This includes notes from commercial entities as well as insights from various analysts. The medium-term forecast for the EUR aims for 1.18 by the end of Q1 and 1.22 by the end of 2026. Looking back at our analysis from 2025, we maintained a positive outlook for the Euro, expecting it to reach 1.18 by the end of Q1. This rise was supported by stabilizing Euro-US yield spreads and a general weakening of the US dollar. The fundamental factors we identified then have largely unfolded as we anticipated.

Trading Strategies For The Euro

As of January 12th, 2026, the EUR/USD is trading around 1.1910, surpassing our earlier target. Last week’s December flash Eurozone CPI data showed core inflation steady at 2.8%, indicating that the European Central Bank may not cut rates as quickly as expected. In contrast, recent US data show cooling inflation, providing the Federal Reserve with more flexibility. While the upward trend for the Euro is still strong, gains towards our year-end target of 1.22 may be slower. For derivative traders, this market favors strategies that benefit from a gradual increase rather than a rapid surge. A bull call spread, which involves buying a March 1.1950 call and selling a March 1.2150 call, could capture potential upside while keeping initial costs lower. The German-US 10-year yield spread, a significant factor we monitored throughout 2025, is currently at -1.45%, continuing to support the Euro. Implied volatility for one-month EUR/USD options is around 7.2%. This level isn’t too high but still reflects the market’s anticipation of central bank discussions. Thus, selling options, like a put credit spread below the 1.1800 support level, could be an appealing way to generate income. Traders worried about a possible short-term pullback might consider buying protective puts if they hold long positions. The 1.1650 area, which served as a key support level last year, remains significant. Any dips towards this level are likely to be seen as buying opportunities and strengthen the case for selling puts at lower strike prices. Create your live VT Markets account and start trading now.

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