The EUR/USD pair is on the rise, trading close to 1.1730 as the US Dollar weakens. This shift is driven by growing tensions between the US and Greenland and the possibility of tariffs from the US on eight EU countries, which could hurt economic growth. President Trump has also raised concerns with a potential 200% tariff on French wines. At the same time, the European Parliament is discussing the suspension of a US trade deal, which could further strain US–Europe relations.

Economic Indicators and Their Importance

Recent US labor market data indicates that the Federal Reserve is unlikely to cut rates soon, which may help support the Dollar. Conversely, the Euro is gaining strength from optimism about Germany’s economy. The ZEW Economic Sentiment Index rose to 59.6 in January, indicating hopes for a rebound by 2026. The Euro is the currency used by 20 EU countries and is the second most traded currency worldwide after the US Dollar. In 2022, it accounted for 31% of foreign exchange transactions, with daily trading over $2.2 trillion. The European Central Bank (ECB), based in Frankfurt, manages monetary policy. Inflation data significantly impacts the Euro’s value, and a healthy trade balance typically strengthens a currency, bolstering the Euro’s market presence. Currently, the EUR/USD shows a clear upward trend, trading around 1.1750. This rise is fueled by a weak US Dollar due to trade issues and a strong Euro. Germany’s ZEW index has reached its highest point since July 2021, confirming an increase in factory orders noted in late 2025. This points to growing confidence in the Eurozone economy in the upcoming year.

Market Strategies and Risks

The escalating rhetoric from the US regarding Greenland and tariffs is putting pressure on the Dollar and adding uncertainty to the market. We’re watching for the European Parliament’s official decision on the US trade deal, which could significantly impact market movements. This uncertainty has caused the one-month implied volatility on EUR/USD options to rise from 5.8% to 6.5% in just the past week, making options strategies pricier but potentially more effective. With the current trend of a weak Dollar and a strong Euro, there’s an opportunity for further upside. Buying near-the-money call options or setting up bull call spreads on EUR/USD could be a smart way to benefit from this upward movement. This strategy offers defined risk while targeting a possible breakout above the recent highs from late 2025. However, we must remain cautious, as the US Dollar’s weakness may not last. Strong labor data from December 2025 has pushed expectations for a Federal Reserve rate cut back to June, providing support for the Dollar. This may limit the pair’s rally, especially as it approaches the 1.1850 resistance level that held firm last October. Create your live VT Markets account and start trading now.

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