The EUR/USD currency pair ended Tuesday with a slight dip of 0.09%, trading at 1.1626 as the market waits for the Federal Reserve’s policy announcement. US economic data indicates a strong labor market with more job openings, but expectations for a Fed rate cut are mostly unchanged. Money markets are suggesting an 88% chance of a 25-basis-point cut. The economic forecasts and the “dot plot” may provide insight into future interest rate trends. In Germany, the trade surplus for October increased to €16.9 billion, exceeding expectations thanks to strong exports. The Bundesbank President believes the current monetary policy is well-positioned, with no changes expected soon. The currency heat map shows movements among major currencies. The US Dollar Index is up 0.14% at 99.23, supported by strong job openings. There is speculation about a possible rate cut by the Federal Reserve, though a hawkish stance from Powell might temper immediate easing expectations. EUR/USD is trading in a narrow range below 1.1650, with immediate support around the 50-day simple moving average (SMA) at 1.1604. A decline below this level could lead to further drops towards 1.1500, given the weakening buying momentum. As the Federal Reserve’s decision approaches, EUR/USD remains stable around 1.1626. Markets have factored in an 88% probability of a 25-basis-point cut, making the announcement less critical than the guidance that follows. Traders should prepare for potential volatility when Chairman Powell speaks. Traders face tension due to mixed data. Strong US labor figures from November contrast with slower economic growth. Recent data showed Q3 2025 GDP growth at 1.8%, while the latest CPI report indicated core inflation is still at 3.2%. This complex situation suggests the Fed may opt for a “hawkish cut,” lowering rates now but signaling fewer cuts ahead in 2026. Our main strategy is to look for a dollar-positive reaction if Powell challenges market expectations for substantial cuts next year. If this occurs, we anticipate EUR/USD to break below the 50-day SMA support at 1.1600. A drop below could lead to a move toward the 1.1500 psychological level in the coming weeks. On the flip side, if Powell adopts a more dovish tone and the “dot plot” suggests more cuts in 2026, the US dollar might weaken. In this case, we would expect EUR/USD to rise above the 1.1650 resistance level. A sustained move above that would bring the 1.1700 level back into play. Given the uncertain nature of this event, using options to manage the expected volatility could be beneficial. A long straddle or strangle strategy—buying both a call and a put option—could help us profit from significant price movements in either direction, allowing us to benefit from the breakout without needing to predict Powell’s stance perfectly. Meanwhile, the European Central Bank seems to be holding steady, highlighting a divergence in policy. Following their recent meeting in November and with Bundesbank President Nagel’s neutral comments, they appear in no hurry to change their policy. This context supports a stronger dollar if the Fed does not suggest major future easing. We’ve seen this pattern before, particularly during the 2019 rate-cutting cycle, where the first cut didn’t lead to lasting dollar weakness. The Fed cut rates as a form of “insurance” rather than initiating an aggressive easing path. Current economic data suggests that we might be entering a similar scenario, making a hawkish surprise more likely.

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