The Euro is gaining strength as the EUR/USD approaches 1.1870, while the Dollar is weakening due to geopolitical worries and potential currency intervention by the US and Japan. Currently, the EUR/USD is at 1.1872, rising from a low of 1.1835 with a gain of 0.39%. Trade tensions between the US and Canada are increasing, even as tariff threats on Europe have decreased. The upcoming Federal Reserve meeting is crucial, with many expecting rates to stay the same. Investors are keen to hear insights during Chair Jerome Powell’s press conference.

Current Economic Indicators

The US Dollar Index has fallen by 0.41% to 97.05, while the German Ifo Business Climate Index remains unchanged. This month, the Euro has shown strength against major currencies, especially against the Canadian Dollar, which has dropped 3.44%. Concerns about intervention from Japan and the US are affecting the Dollar. US Durable Goods Orders rose by 5.3% in November, exceeding expectations. Traders expect a 44 basis point reduction from the Federal Reserve, while German business confidence has not changed since January. Technically, the EUR/USD appears to be on an upward trend and may test 1.1918 or 1.2000 if it breaks through 1.1907. However, a fall below 1.1800 could lead to a test of 1.1728. The trend shifted from sideways to upward after surpassing the December 24 high of 1.1807. A year ago, the Euro was climbing toward 1.1870 as the Dollar weakened amid geopolitical tensions and rumors of currency intervention. However, that bullish period was short-lived as market conditions have changed significantly since early 2025. Now, with the EUR/USD around 1.1150, we need to adjust our strategies.

Strategic Market Positioning

The US Dollar Index, which struggled below 97.05 last year, has made a strong recovery and now trades above 101. Expectations for 44 basis points of Federal Reserve easing by the end of January 2025 did not happen. The Fed remained cautious as core US inflation hovered around 2.8% for the latter half of 2025. On the Euro side, the sluggish German economy, suggested by flat Ifo data last year, continues to be a concern. Recent Eurostat figures indicate that Eurozone inflation dropped to 1.9% in December 2025, increasing pressure on the European Central Bank (ECB) to adopt a softer policy. This growing difference in central bank policies is critical to consider. Given this situation, we recommend using options strategies that can profit from a slow decline or stable prices. Selling out-of-the-money EUR/USD call options can generate income while providing some protection against small price increases. Although implied volatility is currently lower than during the trade-war discussions of 2025, it still offers enough premium to make these strategies worthwhile. Additionally, the widening interest rate gap between the US and the Eurozone is now more significant than it was a year ago. Utilizing futures or forward contracts to bet on further Euro weakness against the Dollar could be effective, especially with central bank meetings coming up. This strategy helps guard against the chance of the ECB signaling rate cuts before the Federal Reserve takes action. Create your live VT Markets account and start trading now.

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