The Euro gained some ground against the US Dollar on Friday, recovering losses from Thursday as the Dollar Index dropped. The Dollar’s status as a safe-haven currency weakened due to a more positive market mood, and the European Central Bank’s stable policy decision caused traders to focus on general market feelings. The EUR/USD is currently at 1.1817, up 0.34%. **The EUR/USD Weekly Performance** The Euro is likely to end the week with losses, trading primarily between 1.1750 and 1.1830. Recent data showed improved Consumer Sentiment in the US, but this did not help the Dollar. Poor job statistics raised concerns that the Federal Reserve might lower rates more than twice this year. Money markets initially anticipated a 62 basis points cut but later adjusted this to 54 basis points, according to Prime Market Terminal data. Federal Reserve officials shared differing opinions: Raphael Bostic adopted a hawkish view while Mary Daly remained neutral. Vice Chair Philip Jefferson noted a stable job market, which helps reduce inflation risks. German industrial production fell 1.9% month-on-month in December, significantly worse than the expected 0.3% decline. Next week is set to include important events such as speeches from the ECB and Fed and key US reports like Nonfarm Payrolls, Retail Sales, and the Consumer Price Index. The technical outlook for EUR/USD appears neutral to downward, showing a pattern of lower highs and lows yet remaining steady. If buyers push past the February 4 high of 1.1837, the pair may aim for 1.1900. Conversely, if it dips below 1.1769, further declines could occur. **The Historical Context** One year ago, in early 2025, the EUR/USD was in a tight trading range, with the market expecting aggressive cuts from the Federal Reserve. Many believed that weakening US job data would prompt the Fed to act, putting pressure on the Dollar. However, the expectation for over 50 basis points of cuts in 2025 turned out to be overly optimistic. Throughout 2025, US inflation remained higher than expected, with core PCE staying over 3% for most of the year. This led the Federal Reserve to maintain higher rates for a longer period, resulting in only one 25-basis-point cut late in the year. Predicted dollar weakness did not occur, and focus shifted to US economic strength. Consequently, the 1.1750 support level, once viewed as crucial in early 2025, broke by mid-year. The pair continued to decline, spending the last quarter of 2025 closer to the 1.1200 mark. The ECB, facing sluggish growth highlighted by weak German data, kept a dovish stance, further impacting the Euro. Looking at data from January 2026, this trend continued as US Nonfarm Payrolls exceeded expectations at 215,000. In contrast, Eurozone headline inflation for January dropped to 2.5%, below forecasts and nearing the ECB’s target. This situation emphasizes the policy gap between a cautious Fed and a more dovish ECB. In the upcoming weeks, traders might consider strategies that capitalize on further Dollar strength and Euro weakness. Buying put options on EUR/USD or setting up bearish put spreads could provide a defined-risk way to prepare for a potential dip below the 1.1200 level. These strategies would harness the ongoing momentum favoring the US Dollar. **Potential Strategies for Traders** Moreover, implied volatility on EUR/USD options seems low, considering the possibility of policy surprises, especially from the ECB. Purchasing straddles or strangles before upcoming inflation reports or central bank meetings may be an effective approach. This strategy would benefit from significant price movements in either direction, which appears likely as markets react to differing economic paths. Create your live VT Markets account and start trading now.

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