EUR/USD rose to nearly 1.1635 during Wednesday’s Asian session, keeping its momentum above the important 100-EMA. The first resistance is at 1.1652, while the initial support is at 1.1580. Recent signals suggest that the European Central Bank (ECB) may stop cutting interest rates, which supports the Euro. ECB President Christine Lagarde noted that borrowing costs are at a suitable level and expects the deposit rate to stay at 2.0%.

US Economic Data Watch

Traders are looking forward to the US ADP Employment Change and ISM Services PMI data, which could offer insights into the US economy. On the daily chart, EUR/USD remains above the 100-EMA at 1.1578, with the RSI indicating positive momentum at 58.9. If the price closes above 1.1652, it could widen the Bollinger Bands and further boost the pair. On the flip side, failure to break upward may revisit the lower Bollinger Band at 1.1507. The Euro is the second most traded currency, accounting for 31% of forex transactions, with daily turnover surpassing $2.2 trillion. The ECB, based in Frankfurt, affects the Euro by setting interest rates and managing monetary policy to maintain price stability and encourage economic growth. Key indicators like inflation and trade balance significantly influence the Euro’s value, as rising interest rates usually strengthen the currency. With EUR/USD approaching 1.1650, market sentiment is clearly positive. The ECB has indicated it will not cut rates further, keeping the deposit rate at 2.0%, which supports the Euro. This is a shift from the trend in much of 2024 when the ECB was easing policies.

Strategic Trading Approach

We should consider recent economic data to strengthen this view. The Eurozone’s HICP inflation for November remained steady at 2.1%, giving the ECB no reason for further cuts. Meanwhile, US data has shown signs of cooling, with last month’s ISM Services PMI falling to 51.8, slightly below expectations. For traders, this creates opportunities for upside, especially if the pair breaks through the 1.1652 resistance level. Buying call options that expire in January 2026 with strike prices of 1.1700 or 1.1750 could be a smart strategy. This allows us to benefit from potential gains while limiting our maximum loss to the premium paid. Given the current reduced volatility, as seen by the contracting Bollinger Bands, a bull call spread might also be wise. By purchasing a 1.1650 call and selling a 1.1800 call, we can decrease the initial trade cost. This strategy would benefit from gradual upward movement rather than a sudden spike. It’s important to manage the risk of a potential reversal, especially with significant US employment data due this week. If EUR/USD struggles to maintain above the 1.1580 support level, the bullish outlook could weaken. A simple hedge would be to buy put options with a strike price near 1.1550 for protection against a sudden decline. Looking back, the pair has climbed significantly from the 1.10-1.12 range seen in the latter half of 2024. This momentum, coupled with the current fundamentals, indicates that buying on dips remains the preferred strategy. The key will be to see if the pair can establish a new trading range above 1.1650. Create your live VT Markets account and start trading now.

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