The EUR/USD has risen sharply above 1.1920, driven by trade tensions and political instability, which are hurting the US Dollar. Tariffs on South Korea, concerns about a US government shutdown, and expectations that the Federal Reserve may cut rates further are all weakening the US Dollar. The Euro has bounced back to challenge its September 2025 highs around 1.1920, supported by positive market outlooks. Meanwhile, ongoing trade issues and immigration tensions in the US are raising fears of a potential government shutdown.

Impact of Tariffs and US Politics

The increase in tariffs on South Korea to 25% could strain US international trade, but Asian markets remain stable. Tensions in Congress over a funding bill could trigger a government shutdown, putting more pressure on the US Dollar. In economic news, US Durable Goods Orders increased by an impressive 5.3% in November. However, all eyes are now on US Consumer Confidence and the Federal Reserve’s upcoming policy decision. EUR/USD bulls are testing the resistance at 1.1920, with technical indicators showing positive momentum. If the price breaks above this level, attention may shift to 1.2000, while support is projected at 1.1830 in case of a downturn. Consumer confidence is crucial for the US economy, reflecting people’s willingness to spend. Additionally, Christine Lagarde, head of the ECB, is set to speak soon, which could influence the Euro’s direction.

Market Strategy and Upcoming Events

As the EUR/USD approaches the 1.1920 resistance, a level not seen since September 2025, the market faces a critical moment. The Euro’s strength largely stems from the US dollar’s weakness, driven by trade tariff uncertainties and the growing risk of a government shutdown. Traders should brace for increased volatility around this key technical level in the coming days. For those expecting a breakout above 1.1920, purchasing call options with a 1.2000 strike price for late February may capitalize on the uptrend. Implied volatility for one-month EUR/USD options is now at 7.5%, indicating the market anticipates a significant move. This is still low compared to the 9% seen during 2025’s political uncertainties, suggesting that buying options could be a smart and cost-effective strategy. On the flip side, if you view the 1.1920 level as a solid ceiling, then considering bearish strategies, like buying puts, could be wise, especially if the price struggles to stay above this level. A vital signal would be a drop below the 1.1830 support level, indicating that the recent rally may have peaked. It’s important to remember the sharp rejection from this same area last autumn, which led to a swift decline. The main focus this week is the Fed’s policy meeting and the political deadlock in Washington. History shows that shutdowns, like the one lasting 35 days in late 2018 and early 2019, can harm dollar sentiment for extended periods. Today’s Consumer Confidence number disappointed at 109.2, well below the expected 114.5, confirming that public sentiment is declining. Upcoming speeches from ECB President Lagarde may also act as significant market movers. Any indications of a more aggressive stance from the European Central Bank could help the Euro break through resistance. Given the busy upcoming calendar, traders unsure of the direction but anticipating a price swing might consider strategies like long straddles to take advantage of rising event risk. Create your live VT Markets account and start trading now.

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