The EUR/USD pair fell below 1.1800, trading around 1.1780. This drop followed strong manufacturing data from the US and news of a trade deal with India that boosted the US Dollar.
US President Donald Trump announced a reduction in tariffs on Indian goods from 50% to 18%. Iran also plans to start nuclear negotiations with the US, which has helped ease regional tensions and further strengthened the US Dollar.
US Manufacturing Index Impact
The US ISM Manufacturing Purchasing Managers’ Index increased to 52.6, its highest level in over three years. However, a partial US government shutdown will delay the Nonfarm Payrolls report, even though Congress approved a bill to reopen federal agencies.
This week, Richmond Federal Reserve President Thomas Barkin and Governor Michelle Bowman will give speeches. The EUR/USD pair, facing a 2.5% reversal, has met resistance at 1.1875, while support around 1.1770 is being closely watched.
There was also a trade deal with China, which involves increased purchases of US goods and reduced tariffs. The US S&P Global Manufacturing PMI rose to 52.4, further strengthening the US Dollar.
Looking back to 2025, the EUR/USD traded around 1.1800. Today, it is hovering near 1.0750, indicating a significant change in the factors driving the market. The previous focus on specific trade deals has shifted to broader worries about economic growth.
Compared to strong manufacturing data from 2025, the US ISM Manufacturing PMI released on February 1, 2026, came in at a weaker 50.1, showing minimal expansion in the factory sector. This decline suggests that the US Dollar might not have the same support from surprising economic data as it did in the past.
Central Bank Divergence Impact
The difference in central bank policies is now crucial for traders. In the past, we awaited speeches from Fed officials, but the CME FedWatch Tool now indicates a 65% chance of a Federal Reserve interest rate cut by July 2026. Meanwhile, the European Central Bank is cautious due to rising wages, which could create a conflict favoring the Euro.
The US-India trade deal has matured, with bilateral trade now over $200 billion annually. However, the market’s focus has shifted from the benefits of tariff reductions to ongoing discussions about non-tariff barriers. The boost to the dollar from the 2025 deal is no longer a major market factor.
For derivative traders, this environment may suggest strategies that position for a potential EUR/USD rise, given the weak US data and dovish Fed outlook. Buying March EUR/USD call options with a strike price near 1.0850 could be a cost-effective way to benefit from a possible breakout, allowing traders to join in gains while limiting risk to the premium paid.
The technical landscape has shifted as well; the key support level from 2025 at 1.1770 is now a distant memory. Currently, the pair finds support around 1.0700, and a sustained move above 1.0800 could indicate a change in momentum. Traders should consider using volatility-based instruments, such as options, to navigate this potential shift, especially before upcoming inflation data from both economies.
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