The Euro (EUR) is holding steady after making slight weekly gains against the US Dollar (USD). Support comes from short-term interest rates and messages from the European Central Bank (ECB). The EUR is nearing 1.18, indicating that it might gain more value before the upcoming ECB meeting. As of Friday’s North American session, the EUR has retreated a bit from its 0.7% weekly gain against the USD. Final Consumer Price Index (CPI) data from France and Germany remained the same as the early estimates.

Support for the EUR

The EUR finds support because the ECB’s stance contrasts with the softer approach of the US Federal Reserve. Interest rates between Europe and the US have become less negative, boosting the EUR’s position. More gains for the EUR seem likely as markets expect slight tightening, with 4 basis points anticipated by October 2026. This week’s gains brought the EUR to new two-month highs, with momentum indicators showing a positive outlook. The Relative Strength Index (RSI) is nearing the 70 overbought level, and there is little resistance before reaching 1.18, a point where past rallies paused. A trading range between 1.1680 and 1.1780 is expected soon. We expect the Euro will remain close to 1.1950 against the US Dollar. This expectation is based on the differing policies of the European Central Bank and the Federal Reserve. The ECB continues to take a strong stance to fight inflation, while the Fed seems more willing to loosen its policies. This key difference is driving strength in the Euro as we approach the end of the year.

Policy Split and Market Implications

The division in policy is backed by hard numbers. Eurozone core inflation is sticking at 3.1%, according to the latest Eurostat report, which pressures ECB policymakers. In contrast, the latest US CPI reading dropped to 2.8%, giving the Fed reasons to adopt a softer approach. As a result, interest rate markets are predicting a growing gap in favor of the Euro through the first half of 2026. We remember how the 1.18 level was a major barrier for the Euro throughout much of 2024 when the differences in central bank policies began to emerge. Now that we’ve surpassed that old resistance, we expect it to serve as new support if there are any pullbacks. Traders should see dips to this level as possible buying opportunities. With implied volatility in EUR/USD options rising as we near the year’s end, buying call options is a wise way to take advantage of potential gains while managing risk. A bull call spread aiming for a rise toward the 1.21 area could be a cost-effective strategy to benefit from continued Euro strength, allowing traders to maintain a positive outlook while protecting their investments. Create your live VT Markets account and start trading now.

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