EUR/USD fell below 1.1500 in early European trading, as rising US dollar-priced energy costs increased expenses for many European companies. The pair was also said to have limited technical support below 1.1470 until the 1.1390/1.1400 area, based on levels seen in early August last year.
The note also referred to a widening in peripheral eurozone government bond spreads. Earlier this year, low volatility and carry trades were linked to narrow spreads, including 50bp for the 10-year Greece–Germany spread.
The recent widening was attributed to de-leveraging, while attention was drawn to possible government measures to shield consumers from higher energy prices. The potential fiscal impact was described as more relevant for Europe than for the United States.
The report added that EUR/USD may struggle to move back above 1.1500/1.1525 without clearly positive news from the Gulf. It also stated the article was produced with an AI tool and reviewed by an editor.
We saw this pressure building last year, and the break below 1.1500 was a clear signal for the euro’s weakness. Those concerns about dollar-denominated energy costs hurting European corporates proved to be a persistent theme. That downward trend has largely defined the market since we first observed it in 2025.
The energy situation remains a structural drag on the euro, directly feeding into inflation and economic performance. Even now, Eurozone core inflation from last month came in at 2.7%, still stubbornly above the central bank’s target. This contrasts with the United States, where growth has remained more resilient and inflation shows clearer signs of moderating.
This economic divergence is forcing the European Central Bank to maintain a restrictive policy stance, even as the Eurozone economy grew by just 0.2% last quarter. The Federal Reserve, facing a different set of conditions, has more flexibility, creating a policy gap that favors the dollar. We believe this dynamic will continue to weigh on the EUR/USD pair.
The issue of widening peripheral bond spreads, which we started tracking in 2025, has not gone away. The spread between Italian and German 10-year government bonds is currently hovering near 160 basis points, reflecting persistent market anxiety over fiscal discipline. This underlying fragility within the Eurozone adds another layer of risk to the common currency.
Given this outlook, traders should consider buying EUR/USD put options to position for further downside potential in the coming weeks. This approach offers a defined-risk way to capitalize on a potential move towards the 1.0700 level. Look at options with expirations in the next one to two months to capture this expected move.
For those wanting to reduce the upfront cost, establishing bear put spreads is a viable strategy. This involves buying a put option while simultaneously selling another put at a lower strike price. This tactic is effective if we anticipate a gradual decline rather than a sudden market crash.
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