**EUR/USD Faces Downward Momentum** The EUR/USD pair is expected to gain 0.39% this week, hitting a ceiling at 1.1650, as traders look ahead to the Federal Reserve’s next steps. Recent economic data boosted the US Dollar, reducing its earlier drop against the Euro. US inflation figures matched expectations, and consumer sentiment improved, according to the University of Michigan. In the Eurozone, growth exceeded predictions, though ECB’s Villeroy warned about inflation risks. The ongoing Russia-Ukraine conflict continues to put pressure on the Euro, despite some progress in negotiations among major powers. The US Core PCE Price Index, a crucial measure of inflation, rose by 0.2% in September, aligning with forecasts. Yearly Core PCE dipped from 2.9% to 2.8%. Consumer sentiment in December improved, with the University of Michigan index increasing to 53.3. Inflation expectations have eased, which may calm long-term price worries. Market expectations for a Fed rate cut remain at 84%. The US Dollar Index fell slightly by 0.09% to 98.98. The EUR/USD stays around 1.1650 but may test lower levels. It risks bearish momentum, aiming for key moving averages near 1.1600 and possibly dropping to 1.1500. **A Shift in Policy Divergence** Today, December 6, 2025, presents a very different situation compared to when the euro was consolidating at 1.1650. The European Central Bank’s concerns about inflation risks, which were minor issues then, have now come to fruition. Eurozone inflation has declined steadily, with the latest Eurostat figures showing a headline rate of 2.2% for 2025, keeping the ECB in a dovish position. The gap in policy between central banks is now more pronounced and is driving the currency pair’s movements. While the markets were anticipating Federal Reserve rate cuts in the past, the Fed has remained cautious as the US Core PCE has been stubborn, recently nearing the 2.1% forecast for 2025. This has kept the US dollar strong, pushing the EUR/USD down to around 1.0850. For traders focusing on derivatives, selling rallies in the EUR/USD is still the favored strategy. We suggest that buying put options or implementing bear put spreads is a smart way to prepare for further decline or stabilization at these lower levels. Targeting strikes below 1.0800 in the coming weeks seems sensible given the weak European growth outlook, projected by the IMF at just 1.2% for this year. Implied volatility is also much lower now compared to the aggressive rate-hike periods seen a couple of years ago. This makes long options strategies, such as purchasing puts, more affordable for traders looking to express a directional viewpoint. The current market environment does not indicate sharp, unexpected movements, making it a good time to buy options without incurring hefty time premiums. The ongoing geopolitical risks from the conflict in Ukraine, which were present previously, continue to limit the Euro’s potential. This ongoing challenge for the European economy supports strategies that take advantage of a stagnant or declining EUR/USD. We see continued opportunities in selling out-of-the-money call options to collect premiums, benefiting from the pair’s struggle to maintain any significant upward momentum. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now