EUR/USD traded near 1.1770 in early Asian trading on Friday and stayed above 1.1750. Gains in the Euro were limited as traders focused on possible changes in European Central Bank leadership.
The Financial Times reported that ECB President Christine Lagarde may leave before the end of her eight-year term. Analysts said an early exit could let Emmanuel Macron and Friedrich Merz influence the choice of her successor ahead of the April 2027 French presidential election.
Dollar Gains On Fed Hike Risk
The US Dollar held firm after strong US labour market data and hawkish Federal Open Market Committee minutes. The minutes said some Federal Reserve officials see rate hikes as possible if inflation stays above the 2% target. They also supported a “two-sided” approach to future policy.
Markets were set to watch US flash GDP for Q4 and the Personal Consumption Expenditures (PCE) report later on Friday. In Europe, preliminary Purchasing Managers’ Index (PMI) readings for the Eurozone and Germany were also due.
In late 2025, EUR/USD was stuck near 1.1770 because central bank outlooks were moving in opposite directions. The Federal Reserve signaled it could hike rates again, while the ECB faced leadership uncertainty. This kept the market in a fragile balance.
That balance broke when Q4 2025 US GDP and PCE data came in stronger than expected, backing the Fed’s hawkish stance. The US economy grew at an annualized 2.9% in that quarter, keeping inflation pressure alive. The dollar then strengthened, and EUR/USD fell below 1.1600 in January 2026.
Options Market Prices In Breakout
Speculation about Lagarde’s future has lifted implied volatility in EUR/USD options. The one-month volatility index was near 6.5% in late 2025, but is now closer to 8.2% this week. This suggests options strategies like straddles could help traders position for a breakout without choosing a direction.
Attention is now on the upcoming US January Core PCE data. Many analysts expect a 0.4% month-over-month rise. Another strong inflation reading would support the hawkish 2025 Fed minutes and could push the pair lower again. In that case, a move toward the 1.1450 support level becomes more likely.
At the same time, Eurozone PMI data has improved slightly. The February 2026 flash composite reading came in at 50.6, just above the neutral 50 level for the first time in six months. This small uptick offers some support for the Euro. If upcoming US data is weaker than expected, EUR/USD could reverse sharply.
Recent CFTC data shows speculative net short positions against the Euro are up about 15% since the start of 2026. With more traders positioned for a drop, the risk of a short squeeze is higher if US data disappoints. Because of this, holding long call options may be a useful hedge against a sudden move higher.
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