EUR/USD has risen to about 1.1720, reaching its highest point in nearly two months, with a gain of nearly 0.8% over the last two days. This increase comes from improved market sentiment supporting the Euro, while the US Dollar struggles after a dovish announcement from the Fed regarding monetary policy. The markets dismissed Oracle’s negative forecasts that raised concerns over AI sector valuations. European stocks opened positively, but US futures suggest minor losses. The Fed’s less aggressive monetary policy led to a decline in the US Dollar after a 25 basis point rate cut.

Focus on US Initial Jobless Claims

On Thursday, the focus will shift to the US Initial Jobless Claims data. This will help determine if last week’s decrease was due to a holiday effect or if it reflects improvements in the labor market. The Federal Reserve’s recent actions have shifted market expectations towards further rate cuts, with only a few dissenting votes against current policies. Market sentiment is also affected by Jerome Powell’s potential replacement, Kevin Hassett, who supports more rate cuts. The Fed’s plan for a $40 billion bond-buying program surprised markets and had an impact on the USD. Meanwhile, ECB President Christine Lagarde has signaled a stable monetary policy, hinting at possible updates to growth forecasts. Technical indicators for EUR/USD show bullish momentum above 1.1705, with targets near 1.1730 and 1.1780. The Initial Jobless Claims data will indicate the health of the US labor market, with lower claims likely boosting the USD. The upcoming estimate is around 220K, while previous claims were at 191K. The Fed’s dovish stance, underscored by the rate cut and surprise bond-buying program, indicates a weaker US Dollar as we approach the end of the year. In contrast, the European Central Bank seems to have concluded its easing cycle, which should support continued strength in EUR/USD. This divergence in policies will guide trading strategies in the coming weeks.

Impact on Derivative Trading Strategies

The US Initial Jobless Claims will be a key data point to support this outlook. A high reading above the consensus of 220K would confirm the Fed’s concerns about the labor market, further weakening the dollar. This aligns with recent data, including the November 2025 CPI, which remained steady at 3.2%, allowing the Fed to prioritize growth support over fighting inflation. For derivative traders, the current environment favors strategies that benefit from a rising EUR/USD. We recommend buying call options with strike prices near 1.1750 and 1.1800 for late December 2025 or January 2026 expirations. This approach enables traders to join the expected upward trend while clearly defining their risk based on the premium paid. This outlook is also reflected in the bond market, where the yield spread between the US 2-year Treasury and the German 2-year Bund has narrowed significantly in the last month. This shift shows that the market is anticipating more rate cuts from the Fed compared to the ECB, reinforcing the bullish case for the euro against the dollar. While the momentum is positive following the break above 1.1700, we should remain cautious about potential thin liquidity as the holidays approach. Unexpectedly strong US data or hawkish comments from Fed officials could lead to sharp, but likely temporary, pullbacks. Still, the trend for EUR/USD appears to be upward as we wrap up 2025. Create your live VT Markets account and start trading now.

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