Ongoing Pessimism Among Investors

The EUR/USD climbed to 1.1590, gaining 0.30% as the US Dollar weakened due to disappointing ADP jobs data and a gloomy economic outlook in the US. The pair hit daily lows of 1.1547. Meanwhile, the US Senate approved a funding bill by a 60-40 vote, and now it awaits a decision from the House, where Speaker Mike Johnson expects quick approval. With few economic reports out, the market turned its attention to statements from Fed officials, which delivered mixed signals. Fed Governor Stephen Moran took a soft stance, forecasting a 50-basis point rate cut in December. Conversely, St. Louis Fed official Alberto Musalem pointed out that inflation is nearing 3% while the labor market is cooling, indicating that monetary policy is approaching neutrality. The Euro is supported by the ECB’s steady rate outlook through 2027, while the Fed hints at potential easing. Although there are some negative trends, a consistent move above 1.1600 may challenge the 1.1700 level. The Euro serves as both the Eurozone’s currency and the second most traded currency globally. The ECB aims for price stability through its monetary policy. A positive Trade Balance strengthens the Euro, while a negative balance does the opposite. The US dollar faces pressure as signs show the American labor market is cooling, a trend likely to persist. The recent October 2025 Nonfarm Payrolls report further confirmed this, showing only 140,000 jobs added instead of the 180,000 expected, reinforcing a dovish sentiment from the Fed. This soft data strengthens the case for a major rate cut in December. In Europe, the Eurozone’s latest Harmonised Index of Consumer Prices (HICP) reported inflation stubbornly holding at 3.1%, making it unlikely for the European Central Bank to consider cuts. This growing gap in monetary policy, with the Fed likely to ease while the ECB remains steady, is key to a stronger Euro. The pessimism reflected in the German ZEW survey indicates that the ECB is unlikely to raise rates, favoring a stable approach.

Preparing for a Resistance Test

Under these conditions, we should expect the EUR/USD pair to test and likely break the 1.1600 resistance level in the next few weeks. Despite a long-term bearish trend, momentum is shifting toward the Euro as the US economy’s weakness takes center stage. For traders in derivatives, this outlook suggests positioning for a gradual increase in the EUR/USD. A good strategy is to buy bull call spreads, such as purchasing the December 1.1600 call and selling the 1.1700 call. This method allows profit from the projected upward movement while limiting initial costs and defining risk. Traders with broader anti-dollar views might explore options on the Dollar Index (DXY). With the index already falling below 100, purchasing puts on the DXY with a January 2026 expiry could serve as either an effective hedge or speculative opportunity. This aligns with predictions that the Fed will continue its easing cycle into the new year. We experienced a similar swift change in market expectations in late 2023 when the Federal Reserve shifted quickly from a hawkish position to indicating potential rate cuts in 2024. The current situation feels familiar, suggesting that policy expectations can shift rapidly when data changes. That previous shift resulted in a notable, albeit temporary, decline of the dollar toward the end of that year. Create your live VT Markets account and start trading now.

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