EUR/USD has dropped this week due to rising US interest rates and concerns about the Federal Open Market Committee (FOMC). The near-term support level is at 1.1585/90, and it could fall to 1.1555/65 in thinner markets as the year wraps up. Still, a rebound to 1.1800 by year-end is possible. In the eurozone, France has approved a social security budget. However, the 2026 state budget looks challenging, and fiscal risks may impact the euro in the coming years. Geopolitically, the EU plans to use emergency powers to freeze EUR210 billion of Russian assets for Ukraine in an effort to prevent a forced ceasefire. There are concerns about how property rights issues might affect the euro’s safe-haven status, yet there’s currently no data showing such an effect. As long as the European Central Bank (ECB) remains uninvolved with supporting Ukraine’s loans, it’s unlikely to harm the euro. With interest rates in the US rising, EUR/USD is under pressure ahead of the FOMC meeting. The latest US inflation data for November was 3.4%, leaving the Federal Reserve little room to suggest rate cuts. This has pushed the 2-year Treasury yield close to 4.75%, which supports a stronger dollar in the short term. Given this situation, we expect EUR/USD to test the 1.1585/90 support level in the next few weeks. Traders might think about buying near-term put options to hedge or speculate on a drop, especially since thinner holiday market liquidity could lead to larger moves down to the 1.1555 area. It’s important to look for signs of stabilization at these levels. On the European front, economic data isn’t helping the euro much. Last week’s figures for German industrial production showed a slowdown, and in France, political challenges are complicating the 2026 budget process. These domestic problems are weighing on the euro. Nevertheless, any significant drop in EUR/USD might be temporary and could create a buying opportunity. A quick bounce toward 1.1800 is possible before the year ends, driven by profit-taking on short dollar positions. This suggests that preparing for a rebound with call options expiring in January 2026 may be a wise strategy once the pair shows signs of bottoming out. The conversation about using frozen Russian assets to assist Ukraine remains a background issue. While some fear this could hurt the euro’s safe-haven status, there’s no evidence of this from capital flow data, similar to how markets managed the initial sanctions in 2022. For now, this remains a low-risk concern for the euro as long as the ECB isn’t directly involved.

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