The EUR/USD exchange rate is nearing the 1.19 mark, largely due to a drop in the Dollar’s value. Analysts believe that the unpredictable nature of US policies could lead to a significant and lasting weakening of the Dollar. Current trends suggest that unless the US improves its relationships with important Western allies, the Dollar may continue to decline. There are worries that this unpredictability in US policy could push the market beyond a critical point, making recovery difficult. This situation could cause the market to expect an uncontrollable depreciation of the Dollar. Even if policymakers try to change direction, stabilizing the Dollar could be hard.

Fxstreet Insights Team

This article comes from the FXStreet Insights Team, which gathers market observations from various experts. The insights provided mix information from commercial sources with thorough analyses. The EUR/USD exchange rate is actively testing the 1.19 resistance level, thanks to a widespread weakness in the Dollar. This trend gained steam after US CPI data from December 2025 came in below expectations at 2.5%, leading to predictions of Federal Reserve rate cuts later this year. In contrast, inflation in the Eurozone remains higher at 2.8%, benefiting the euro. There’s a growing risk that the market is nearing a tipping point from which the Dollar may find it difficult to recover. Unpredictable US trade policies, including renewed threats of tariffs against European allies, are causing concerns among investors. This political risk is becoming a major factor, potentially setting the stage for uncontrollable Dollar depreciation.

Positioning For A Breakout

For derivative traders, this situation calls for positioning to break above 1.19. One-month implied volatility on EUR/USD has risen from 7.0% to 8.5% since the beginning of the year, indicating that the market is anticipating larger price movements. Buying EUR/USD call options with strike prices at 1.1950 and 1.2000 could capture the expected upward trend. The sharp market changes driven by policy in 2022 are echoing in the current climate of uncertainty. Unlike the short-term shocks we experienced in 2025, the mix of economic discrepancies and political tensions points to a more prolonged period of Dollar weakness. Therefore, trading strategies should focus on multi-week trends rather than brief jumps. Create your live VT Markets account and start trading now.

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