EUR/USD rose more than 1.16% after the ECB kept rates unchanged, while a leak suggested policymakers may discuss rate rises as soon as April. The pair traded around 1.1582 after rebounding from near 1.1440. The ECB left the deposit facility rate at 2%, the main refinancing rate at 2.15%, and the marginal lending rate at 2.40%. It said the Middle East war will have a material impact on near-term inflation through higher energy prices, with medium-term effects depending on the conflict and energy pass-through.

Central Banks And Market Reaction

In the US, the Fed kept rates steady and the US Dollar index fell more than 1% to 99.21. Initial Jobless Claims fell from 213K to 205K versus a 215K forecast, while New Home Sales fell -17.6% MoM in January after -1.7% in December. US Treasury yields retreated after an earlier spike, and Prime Market Terminal data put no Fed rate cuts through 2026. Upcoming Eurozone data include the current account, trade balance, and Germany’s PPI, while the US calendar is empty. Technically, EUR/USD was near 1.1585 with RSI at 45.65. Levels cited include resistance at 1.1636, 1.1730, 1.1820 and 1.1900, and support at 1.1567, 1.1512 and 1.1417. Looking back to March of 2025, we saw the EUR/USD pair spike on whispers of an ECB rate hike, a move that briefly took the rate above 1.15. That excitement was driven by fears of energy-related inflation stemming from conflict in the Middle East. Today, the situation has dramatically changed, with the fundamental driver now being the wide interest rate differential between the US and Europe. The European Central Bank did follow through with hikes in 2025 but has since paused, holding its deposit facility rate at 2.75% for the last two quarters. In contrast, the US Federal Reserve remains firm at 5.50%, creating a significant yield advantage for holding US dollars. This wide gap continues to put underlying pressure on the euro, making last year’s highs seem very distant.

Rates Inflation And Volatility

The inflation picture that worried officials last year has also cooled considerably, removing the urgency for further ECB action. February 2026 data showed Eurozone headline inflation at 2.4%, well down from the peaks of 2025, while US core PCE remains stickier around 2.8%. Brent crude, which spiked during the 2025 conflict, has stabilized and now trades in a range near $88 a barrel, easing pressure on Europe’s energy import costs. Given this stability, we see that implied volatility in the euro has fallen, with the CBOE EuroCurrency Volatility Index (EVZ) hovering near a low of 5.8. This suggests that option premiums are relatively cheap, creating opportunities to position for a potential breakout from the current tight trading range. Traders should consider buying straddles or strangles if they anticipate a future catalyst reintroducing volatility, while the interest rate differential favors strategies that are short the euro. The technical landscape is now entirely different from what it was in 2025. The key resistance level from last year near 1.1730 is no longer relevant, as we are now trading around 1.0750. The immediate focus should be on the 1.0850 level as resistance, with critical support located at the year-to-date low near 1.0600. Create your live VT Markets account and start trading now.

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