EUR/USD is currently declining, trading around 1.1720 in a quiet New Year’s session. This drop follows disappointing manufacturing activity in the Eurozone, which has weakened the Euro. In December, the Eurozone experienced a decline in manufacturing, with the PMI revised to 48.8, indicating a faster downturn compared to previous months. Germany’s figures also showed weaker activity, with a revised PMI of 47.0.

French Manufacturing Activity

In contrast, France saw a slight increase in its manufacturing PMI, rising to 50.7. It is expected that the US PMI data will show moderate growth, with a preliminary reading of 51.8. The trend for EUR/USD remains bearish, having broken below trendline support from earlier lows. Resistance is seen around 1.1764, and trend shifts will be confirmed at 1.1700. The US Dollar weakened by about 14% against the Euro in 2025, mainly due to concerns over US trade policies and economic slowdown. Market dynamics may also be affected by the upcoming US Nonfarm Payrolls data and the nomination of a new Federal Reserve Chair. As EUR/USD trends downward, we are closely watching the 1.1700 level. This bearish outlook is fueled by new data indicating that manufacturing activity in the Eurozone contracted more than anticipated in December. The final HCOB Manufacturing PMI reading was 48.8, lower than the preliminary figure of 49.2, showing a quicker decline than the previous month. Next, attention turns to the US S&P Manufacturing PMI figures, with market expectations around 51.8. This would indicate that the US manufacturing sector is still growing, albeit at a slower pace. The contrast between a shrinking Eurozone and a growing US economy supports a stronger dollar in the near term. For traders in derivatives, this suggests a strategy of preparing for a potential drop below the 1.1700 support level. Buying put options around a strike price of 1.1680 or 1.1650 could be effective in taking advantage of this downward trend if US data comes in strong. The cost of these options reflects current market expectations of volatility.

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Looking forward, the US Nonfarm Payrolls report due next week is the next major event to watch. A robust jobs number, similar to the 200,000+ figures we saw in late 2025, would support the Federal Reserve’s more aggressive stance compared to the European Central Bank. This would likely increase downward pressure on EUR/USD. It’s important to note that this recent decline for EUR/USD follows a 14% drop in the dollar’s value against the Euro throughout most of 2025. This raises the question: is this a short-term adjustment, or the start of a longer-term trend favoring the dollar in 2026? The technical break below the mid-November trendline indicates that bearish sentiment is currently gaining traction. Another factor to keep in mind is the uncertainty surrounding Jerome Powell’s replacement as Federal Reserve Chair. This unknown can lead to increased implied volatility, raising the cost of options contracts. Traders should consider this in their plans, as unexpected announcements may cause significant price fluctuations in the coming weeks. Create your live VT Markets account and start trading now.

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