The Euro (EUR) is steady in the mid-1.15 range as we begin the North American session on Monday, showing no change since Friday. Last week’s recovery was due to narrowing yield spreads, driven by softer expectations for the Federal Reserve, while the European Central Bank’s position has remained neutral. The options market reflects a positive outlook for the Euro, with three-month risk reversals indicating a premium for upward protection. A key event this week is Tuesday’s ZEW sentiment survey, where forecasts predict improvements in both the current situation and expectations. Last week’s gains came after bouncing off support levels below 1.15. The Relative Strength Index signaled oversold conditions, resting just above 30. Resistance is expected around the 50-day moving average at 1.1665, with a near-term trading range anticipated between 1.1520 and 1.1620. The Euro’s current stability shows that it has recovered from a significant drop below 1.15. This suggests a potential support level is forming. Traders now have a clear range to work within for the weeks ahead. This strength is mainly due to changing interest rate expectations, which have narrowed yield spreads in favor of the Euro. Market sentiment is becoming less aggressive about the U.S. Federal Reserve’s future actions, while expectations for the European Central Bank remain steady. This makes the Euro more appealing than it was a few weeks ago. Supporting this view, the gap between the U.S. 10-year Treasury and the German 10-year Bund has tightened from over 180 basis points to around 162 basis points in early November 2025. The CME Group’s FedWatch Tool shows that the chances of another Fed rate hike this year have fallen from nearly 60% to just under 40% in the last ten days, confirming that the market is easing its hawkish outlook. The derivatives market is also showing a bullish trend, as three-month risk reversals again price a premium for Euro upside protection. This indicates that traders prefer buying calls over puts, suggesting they fear missing out on a rally rather than being caught in a drop. A similar trend was seen in the options market earlier in 2024, which preceded a two-cent rise in the Euro over the next month. Given this context, we expect the Euro to trade between 1.1520 and 1.1620, with resistance at the 50-day moving average of 1.1665. Traders might consider strategies like selling puts near the 1.1500 support level to collect premium during this consolidation phase. Alternatively, bull call spreads could provide a defined-risk opportunity for positioning ahead of a possible breakout, especially with Tuesday’s ZEW sentiment survey as a catalyst.

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