EUR/USD has dropped to around 1.1710, down by 0.15%. This change comes after new data showed weaker economic performance in the Eurozone and lower inflation rates in Germany, raising worries about economic growth in the region. The Eurozone Services PMI was revised to 52.4 in December, down from 52.6 and lower than November’s 53.1, signaling a slowdown. In Germany, inflation fell in December, with the CPI decreasing to 1.8% from 2.3% in November. The HICP also declined to 2% from 2.6%.

US Economic Indicators

In the US, recent data has caused the EUR/USD exchange rate to fluctuate. December’s Services PMI was revised to 52.5, the lowest in eight months, while the Composite PMI stood at 52.7. Slower demand and weaker job growth suggest a dip in US economic activity, despite ongoing cost pressures. The market is awaiting US labor market reports for guidance. Fed Governor Stephen Miran believes that more than 100 basis points in rate cuts will be needed. Meanwhile, the Euro’s performance varied against other major currencies, showing the strongest results against the Swiss Franc. The accompanying table shows percentage changes in currency values, helping track these shifts. As we analyze the market on January 6, 2026, the trends from last year are much clearer. The gap between the Eurozone and US economies has widened. This was evident in 2025 when EUR/USD traded around 1.17, and now the pair is moving in a range around 1.1250.

Implications For Traders

The fundamental weakness in the Eurozone is a major factor driving this change. Recent data revealed that inflation in the Eurozone dropped to just 1.1% in December 2025, well below the European Central Bank’s 2% target. This ongoing disinflationary trend puts pressure on the ECB to adopt more supportive policies, negatively impacting the Euro. In contrast, the US economy is showing more strength than expected back in 2025. Last Friday’s Non-Farm Payrolls report for December indicated a robust addition of 195,000 jobs, surpassing expectations and signaling a tight labor market. As a result, markets have lowered their expectations for 2026 Federal Reserve rate cuts, making the US Dollar more appealing. For derivative traders, the widening gap between a dovish ECB and a cautious Fed presents a clear strategy. Selling out-of-the-money call options on EUR/USD could effectively generate premium income, as a major rally above 1.14 seems unlikely in the upcoming weeks. Those seeking downside exposure might consider buying put options, which would benefit from a continued decline toward the 1.10 level. Looking back to the 2014-2015 period provides a relevant comparison. Similar policy divergence then caused a strong rally in the US Dollar. Currently, the one-month implied volatility for EUR/USD options is around a low 6.5%, suggesting the market anticipates a gradual decline rather than a sharp drop. This environment favors strategies that seek to profit from the ongoing downward trend rather than sudden spikes in volatility. Create your live VT Markets account and start trading now.

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