The Euro’s Performance The Euro has benefited from Germany’s increased spending and a shift away from the dollar. At the beginning of the year, Germany eased its debt rules. As a result, the Euro became the second-best performing currency among the G10 in the second quarter, just after the Swiss Franc. People think that German spending might help boost Europe’s largest economy from stagnation next year. The Euro has been getting ready for this change for several months. Additionally, moves to diversify investments are expected to keep supporting the Euro in the short term. Recently, the US Federal Reserve raised its growth forecasts for 2025 and 2026. This change is due to strong consumer spending and more business investments, which may lead to continued investment flows into the US. In the first half of the year, there was a notable drop in long US dollar positions. However, since trade policies haven’t caused as much disruption as feared, there’s caution about further declines in the US dollar. Instead, it looks like the Euro and the US dollar will trade in a fluctuating range throughout 2026. Germany’s Economic Stimulus This year, the Euro has gained support from Germany’s increased fiscal spending and a shift away from the dollar. However, the U.S. economy is performing better than expected, which is likely to keep the EUR/USD in a stable range instead of leading to a big rally by 2026. This view aligns with the Fed’s updated growth outlook from last week. We are starting to see positive effects from Germany’s stimulus, which was approved at the start of 2025. The latest German Ifo Business Climate index for November rose to 91.5, marking its third consecutive monthly increase. This suggests that economic stagnation may finally be ending. Consequently, the Euro has become one of the stronger G10 currencies since spring. Conversely, the American economy continues to show unexpected strength, reinforcing the Fed’s confidence. Data on retail sales for November showed a 0.5% month-over-month increase, surpassing forecasts and highlighting the resilience of U.S. consumers. This solid economic activity keeps the dollar on a steady footing. For traders dealing in derivatives in the upcoming weeks, this environment suggests that strategies benefiting from sideways movement are favorable. Selling volatility through option strategies like iron condors or short straddles seems wise, as these positions can profit as long as the EUR/USD pair stays within a specific price range. This outlook is evident in the options market, where the one-month implied volatility for EUR/USD has dropped to around 6.5%. This is significantly lower than during the broad dollar sell-off in the first half of 2025, indicating that the market isn’t currently expecting a major directional shift. We can recall the period from 2015 to 2017, when EUR/USD mostly stayed between 1.05 and 1.15. That situation was frustrating for trend-followers but profitable for those betting on a sideways market. A similar trend seems to be forming as we approach the new year. Create your live VT Markets account and start trading now.

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