The Euro (EUR) has dropped by 0.1% against the US Dollar (USD), continuing its decline since last June. Recent data has been mixed; the Euro has reacted to disappointing numbers, like the Consumer Price Index (CPI), but has ignored good news, such as positive German industrial production figures. This mixed information has caused lower expectations for interest rates and weakened support for the Euro. Additionally, there is growing pressure on sentiment, evident from a decrease in demand for protection against the Euro’s strength. The European Central Bank (ECB) is providing neutral policy guidance, which gives little direction to the Euro.

Key Support Level

The 50-day moving average at 1.1651 is a crucial support level. Although it has not been significantly breached, there are growing concerns about the Euro’s continued decline, with little support expected between current levels and 1.16. The Euro remains weak against the US Dollar, reflecting the bearish trend that began in the last quarter of 2025. This weakness is due to a growing policy difference between a cautious European Central Bank and a more confident US Federal Reserve. The market seems to be focusing only on negative news from Europe while overlooking any minor positive surprises. Recent data from the end of last year has also dampened expectations for interest rates, weakening support for the Euro. The December 2025 US nonfarm payrolls report showed a strong addition of 216,000 jobs, far exceeding the weak German factory orders reported for the same month. As a result, futures markets are now predicting an ECB rate cut by the second quarter of this year, much sooner than any expected action from the Fed.

Derivatives Market Shift

In the derivatives market, there has been a noticeable shift as traders prepare for further weakness. The cost of options that protect against a decline in the Euro has increased, showing a rising demand for downside protection. This indicates that market participants are more focused on managing the risks of a drop rather than positioning for a rally in the short term. We previously identified the 1.0800 level as important near-term support. The recent drop below this level raises concerns. Although the move hasn’t been drastic, we are now more wary of a potential extension of this decline in the coming weeks. There appears to be limited support between current levels and the 1.0650 area, which was a significant low in October 2025. Create your live VT Markets account and start trading now.

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