The Euro has dipped slightly after Kevin Warsh was nominated as the next Federal Reserve Chairman. The EUR/USD pair has pulled back from 1.2000 to the lower 1.1900s. Although the Eurozone and German GDP figures surpassed expectations last quarter, they haven’t significantly boosted the currency pair. Support at 1.1900 is holding for now. US President Trump confirmed Warsh’s nomination, which is expected to keep the Fed independent. Political updates indicate a potential US government shutdown might be avoided, which is helping the US Dollar. US economic data is mixed: while Factory Orders exceeded forecasts, Jobless Claims rose and the trade deficit widened. Attention now turns to the US Producer Price Index data due on Friday.

Euro’s Strength Against Major Currencies

The Euro has displayed strength against major currencies, particularly the Japanese Yen. However, a strong Euro raises concerns about product competitiveness in Europe and may lead to possible rate cuts. Eurozone data showed steady 0.3% GDP growth in Q4, surpassing predictions. German inflation figures revealed a slight dip in yearly price pressures in January, with GDP growth also accelerating to 0.3% in Q4. Currently, EUR/USD bears dominate the market with support at 1.1895 facing pressure. Bearish momentum is increasing, indicated by technical trends. Key resistance levels to watch are the January 29 high near 1.2000 and the January 27 high at 1.2082. Warsh’s nomination points to a more hawkish Fed, which is strengthening the U.S. dollar. This creates a growing policy divide compared to a European Central Bank, which is increasingly concerned about the Euro’s strength. We believe this fundamental change will heavily influence the currency pair in the coming weeks. Despite the recent positive GDP and inflation data from Germany and the Eurozone, the market seems to overlook them. The focus has shifted to the first official hints of interest rate cuts from ECB members since similar discussions in the summer of 2025. This dovish shift could limit any major rallies for the Euro.

Market Expectations and Derivative Trading

Market expectations are shifting quickly towards a more aggressive Fed policy. The CME’s FedWatch Tool now indicates over a 70% chance of a 25-basis-point rate hike by the March meeting, up from 45% last week. This shift supports the dollar significantly. For derivative traders, buying EUR/USD put options is becoming an appealing strategy. This approach allows them to profit from a potential drop toward support levels at 1.1850 and then 1.1730, while keeping risk defined to the premium paid. The growing bearish momentum in technical charts also supports such positions. The options market is signaling increased volatility, as shown by the Cboe EuroCurrency Volatility Index (EVZ) which has risen by 15% this week. This suggests traders are anticipating bigger price swings, raising the potential rewards for long volatility positions like put options. An uptick in volatility indicates the market is wary of a significant downturn. We have seen similar patterns before, particularly during the 2014-2015 period from our perspective in 2025. Back then, the Fed began indicating a shift towards policy normalization while the ECB continued easing, resulting in a strong dollar rally. The current situation, with a hawkish Fed chair and a cautious ECB, mirrors that time and supports a bearish outlook on the EUR/USD. Create your live VT Markets account and start trading now.

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