EUR/USD is likely to trend upward in December after successfully maintaining the 1.15 support level in November. The euro is expected to strengthen as ECB President Christine Lagarde is anticipated to confirm that current interest rates are suitable, backed by a strong Eurozone economy and stable conditions in France, as noted by DBS’ Senior FX Strategist. The European Central Bank (ECB) is expected to keep the deposit facility rate at 2% until 2026. During her appearance before the European Parliament on December 3, Lagarde is likely to state that interest rates are appropriate, expressing optimism for the Eurozone economy and the steady situation in France.

Immediate Trading Focus

We believe EUR/USD has potential to rise in December after holding steady at the 1.15 support level throughout November. All attention will be on ECB President Lagarde’s remarks on December 3 for confirmation of this trend. This will be crucial for our immediate trading strategy. The case for the European Central Bank to maintain its deposit rate at 2% for the long term is getting stronger, possibly until 2026. Recent data supports this, with Eurostat’s preliminary estimate for November showing headline inflation steady at a manageable 2.3%. The resilience of the Eurozone economy, evidenced by a 0.2% GDP growth in the third quarter, gives the ECB little reason to alter its path. This stability in Europe is in stark contrast to the U.S., where the Fed might face more pressure to react. For example, the latest U.S. jobs report for November indicated a slight slowdown, with non-farm payrolls increasing by just 150,000 jobs, falling short of market expectations. This difference in economic performance is a key factor in our positive outlook for the euro.

Opportunity for Derivative Traders

For those trading derivatives, this outlook suggests that buying call options or setting up bull call spreads on EUR/USD could be a smart strategy to benefit from a potential rise. One-month implied volatility for the pair has increased to about 7.5%, showing that the market anticipates more movement but isn’t overly worried. This creates an opportunity to enter positions before a possible breakout. We have seen a similar trend in the past, which boosts our confidence in this outlook. In late 2023, for instance, the euro gained strength when the ECB held a steady course while expectations for Fed rate cuts began to form. This historical pattern supports the idea that differing policies can provide strong support for the euro. Create your live VT Markets account and start trading now.

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