**EUR/USD Stabilizes Despite Mixed US Data** The EUR/USD pair is holding steady near its one-month low as we digest recent mixed data from the US. The Euro remains stable against the US Dollar, with minimal changes following the release of US Producer Price Index (PPI) and Retail Sales data. Currently, EUR/USD is trading around 1.1656, close to its monthly low. Looking at the past two months of US producer inflation data, October’s PPI increased by 0.1% month-over-month (MoM), while the annual rate dropped from 3% to 2.8%. Core PPI also changed, rising by 0.3% MoM and holding steady at 2.9% annually. For November, there was a PPI increase of 0.2% MoM, and the annual rate climbed to 3%, exceeding the forecast of 2.7%. In November, US Retail Sales figures showed strong consumer demand, with sales up by 0.6% MoM—higher than the expected 0.4% and reversing October’s 0.1% drop. The control group, important for GDP calculations, increased by 0.4%, down from October’s 0.6%. **Federal Reserve’s Monetary Policy Outlook** The recent PPI and Retail Sales results haven’t significantly changed expectations for the Federal Reserve’s monetary policy, with markets previously anticipating two rate cuts this year. All eyes are now on statements from Fed officials to assess the future economic trajectory. Back in late 2025, the EUR/USD pair remained around 1.1656 as the market dealt with mixed signals from the US economy. Strong consumer spending, indicated by a 0.6% rise in November’s retail sales, contrasted with some confusion in the inflation data from the PPI, causing uncertainty about the Federal Reserve’s policy direction for the upcoming year. As of January 14, 2026, the US Dollar continues to show strength, pushing the EUR/USD pair toward the 1.1480 mark. The Fed’s cautious stance during their December 2025 meeting was supported by the latest core CPI data, which showed inflation remaining steady at 2.9% year-over-year. This has reduced the expectations for rate cuts that were discussed late last year. The market’s previous expectations for a potential July 2026 rate cut now seem unlikely. Currently, Fed funds futures only reflect a 35% chance of a single rate reduction before the fourth quarter ends, a sharp contrast to the two cuts being discussed a few months ago. **Eurozone’s Economic Conditions and Strategies** Meanwhile, the economic situation in the Eurozone appears weaker, contributing to the decline in the EUR/USD pair. The latest flash manufacturing PMI for the region shows a contraction at 48.5, and recent dovish comments from European Central Bank (ECB) members suggest a preference for easing policies over the Federal Reserve. Historically, such divergence tends to favor the US Dollar, reminiscent of the 2014-2015 period. For derivative traders, this divergence indicates that implied volatility on the EUR/USD pair, which has been close to multi-year lows, may be set to rise. Options pricing shows a potential breakout, with one-month risk reversal indicating a stronger preference for EUR puts compared to the previous quarter of 2025. This signals that traders are increasingly positioning for a downward trend. Given this outlook, strategies that capitalize on a falling euro or increased volatility should be pursued. Buying long-dated EUR/USD puts with a strike price near 1.1400 could provide a direct play on further dollar strength. For those expecting significant movement but unsure of the immediate direction, a long strangle using options expiring in March 2026 could effectively position for a breakout. Create your live VT Markets account and start trading now.

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