EUR/USD rose to 1.1760, a 0.42% increase from 1.1757, bouncing back from a low of 1.1706 as the Dollar weakened due to lessened speculation. The Federal Reserve’s possible easing of policies affected the Dollar, especially with limited economic data from both the US and Europe. Market focus shifted to discussions among Fed officials regarding irregularities in CPI data and predicted rate cuts, with the first expected in June 2026. In contrast, ECB officials downplayed any aggressive moves, while countries in Europe awaited essential GDP numbers.

US Dollar Weakness and Euro Considerations

The US Dollar Index fell by 0.45% to 98.27, which supported the Euro’s strength as officials examined the effects of a 43-day government shutdown on CPI data. November’s inflation in the US dropped to 2.7% year-on-year, influenced by the shutdown. Technical analysis indicates that EUR/USD is consolidating between 1.1700 and 1.1750, with resistance at 1.1800 and support levels below. The Euro, being the second-most traded currency, significantly impacts global finance, and the ECB works to manage monetary policy for price stability. The Eurozone’s inflation data and economic performance, shown through GDP and other indicators, shape the Euro’s strength. A favorable trade balance boosts the Euro’s value, making economic data essential for predicting future currency movements. With current trends, we expect the US dollar to weaken as the Federal Reserve is anticipated to cut rates next year. Traders should consider strategies for a potential rise in the EUR/USD pair, especially since markets are factoring in a high chance of a rate cut by June 2026. The futures markets, including CME’s FedWatch Tool, indicate over a 70% likelihood of a 25-basis point reduction in June, reinforcing a dovish outlook.

Technical Analysis and Market Strategies

Nonetheless, we must be cautious. Fed officials have noted irregularities in the November CPI report due to the earlier government shutdown. This uncertainty means that any forthcoming data, including US Q3 GDP and consumer confidence numbers this week, could lead to sudden reversals. A decisive drop below the 98.00 level in the US Dollar Index (DXY) would strengthen our confidence in a lasting euro rally. On the European front, the ECB isn’t giving strong, independent reasons for the Euro’s strength, as policymakers are downplaying hawkish signals. Recent data from the German IFO Business Climate index indicated a slight improvement in December 2025, but it’s still within pessimistic territory, highlighting ongoing concerns around Eurozone growth. This suggests the current EUR/USD rally is mainly due to US dollar weakness rather than euro strength. From a technical perspective, options traders should closely monitor the 1.1800 level. A sustained break above it could lead to more buying and pave the way for new yearly highs. On the downside, the 1.1700 mark is critical support, with put option strike prices likely clustered around the 20-day moving average near 1.1679. The current consolidation offers opportunities to create range-bound strategies like iron condors if conviction in a breakout is low. As we approach the holiday season with thinner markets in late December and early January, keep in mind that liquidity levels will be lower than usual. Past years have shown how this environment can lead to exaggerated price movements from small news or order flows. Implied volatility from options pricing indicates that traders are preparing for shifts, so it’s wise to protect positions against unexpected gaps. Create your live VT Markets account and start trading now.

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