EUR/USD stayed below the mid-1.1800s for a second straight day on Tuesday during quiet Asian trading. The US Dollar Index held above 97.00, which kept pressure on the pair.
The euro weakened as markets leaned more toward the idea of an ECB rate cut. This followed a drop in Eurozone inflation to its lowest level since September 2024.
Dollar Drivers And Fed Expectations
The US dollar’s gains were capped by expectations that the Federal Reserve will turn more dovish. Expectations for a June rate cut increased after softer US consumer inflation data last Friday. Concerns about Fed independence also reduced support for the dollar.
Risk-on sentiment also lowered demand for the safe-haven dollar. Markets are waiting for clearer signals on the Fed’s rate path, with attention on the FOMC minutes on Wednesday.
Later this week, traders will watch the Advance US Q4 GDP report, the US PCE Price Index, and global flash PMIs for more direction.
This looks similar to early 2025, when EUR/USD weakness below the mid-1.1800s was seen as limited. That view proved right as the pair later stabilized and climbed through the rest of the year. That price action suggests the 1.18–1.19 area is now an important floor for the market.
Implications For Range Trading
The euro remains under pressure from the European Central Bank’s cautious stance. This has been a key theme since Eurozone inflation bottomed in late 2024. Recent data supports this: the latest January 2026 Eurozone HICP inflation reading was 1.7%, still well below the ECB’s target. This strengthens the case that the ECB is not in a rush to tighten policy, which should limit any major euro rally.
On the other side, expectations for a dovish Fed that began in 2025—and led to rate cuts that summer—still shape market views. While US inflation is slightly higher at 2.4%, the Fed has signaled it will move patiently, which limits the dollar’s upside. A cautious ECB and a patient Fed are helping to keep the pair range-bound.
With no clear catalyst, FX volatility has fallen to multi-year lows. The VIX has stayed near 15. For derivatives traders, this low-volatility setup can make option-selling strategies more appealing for income. Short strangles or iron condors may work well in the coming weeks.
One practical approach is to sell out-of-the-money puts below the key 1.1900 support level, while also selling calls above recent highs near 1.2250. This lets traders collect premium by betting that EUR/USD stays within a broad range. The fundamentals support consolidation rather than a major breakout in either direction.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
