The European Central Bank (ECB) kept its policy rates unchanged, highlighting a flexible approach that relies on data. President Lagarde stated that all options remain open, indicating that the easing cycle might soon be ending. The EUR/USD pair is supported, with technical indicators suggesting buying on dips, even though a correction could happen. It was last seen at 1.1713.

The ECB Decision

Lagarde mentioned that the ECB is in a “good place” with rates, though the policy can change as needed. This decision marks the fourth meeting in a row without changes. She addressed market speculation about future policies, saying all options are on the table, but there isn’t a specific direction yet. A rate hike is possible, and the overall tone is slightly hawkish. Better growth expectations and higher Consumer Price Index (CPI) forecasts, along with the likely end of the easing cycle, strengthen the Euro. While there is some bullish momentum, it seems to be fading as the Relative Strength Index (RSI) declined from overbought levels. A pullback could occur, but the strategy is to buy on dips, with support at 1.1640 and 1.1610, and resistance at 1.1760 and 1.1820. The ECB’s decision to hold rates supports the idea that the easing cycle is nearing its end. This adaptable stance suggests that interest rates in the Eurozone are unlikely to fall soon. Although it’s not confirmed, a future rate hike is now a real possibility. This slightly hawkish tone is backed by data showing Eurozone inflation at a stubborn 2.8%, well above the ECB’s 2% target. Additionally, GDP grew by 0.4% in the third quarter of 2025, providing the central bank with the leeway to maintain its policy. This economic strength supports the bank’s decision to keep all options available. In contrast, recent comments from the US Federal Reserve indicate a possible slowdown in the US economy, leading to speculation that they might consider rate cuts in the first half of 2026. This contrast between a solid ECB and a potentially softening Fed strengthens the Euro against the US dollar, shaping currency markets as we head into the new year.

Derivative Strategy

For derivative traders, this outlook suggests buying call options on the EUR/USD. With the current level at 1.1713, purchasing calls with a strike price around 1.1750 or 1.1800 for contracts expiring in late January or February 2026 could be a smart way to benefit from expected increases. This strategy allows traders to take part in a rising market while limiting potential losses to the premium paid. Since the ECB’s policy is “not static,” we expect more volatility around key data releases, especially the upcoming inflation report. Traders might want to buy straddles before the next CPI announcement to profit from significant price movements in either direction. This method takes advantage of the uncertainty that comes with a data-dependent policy. We experienced a similar situation in 2023 when central banks maintained high rates for a long time to deal with ongoing inflation. That period showed us that ‘buy-on-dips’ can be effective in a supported currency environment. Thus, using any pullbacks toward the 1.1640 support level could offer good entry points for long positions. Create your live VT Markets account and start trading now.

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