EUR/USD is rising due to a better risk appetite and expectations of the US Federal Reserve easing. Mixed results in Eurozone inflation didn’t significantly affect EUR/USD. Ongoing geopolitical tensions in Eastern Europe present a risk to the Euro. On Tuesday, EUR/USD increased by 0.12% as risk appetite improved. With a possible Fed rate cut in December and rising Eurozone inflation, the Euro remains appealing. Currently trading at 1.1625, it recovered from earlier lows of 1.1591.

ISM Manufacturing PMI Focus

With a light economic agenda in the US, traders focused on the ISM Manufacturing PMI report. This report showed slowing business activity, a higher price index, and a cooling labor market. Money markets predict an 87% chance of a Fed rate cut in December, which supports the Euro. In Europe, mixed inflation data had little impact. The ongoing conflict in Eastern Europe poses a risk for further Euro gains, especially as the Russian President shows readiness for war. This week’s agenda includes Eurozone PMIs, US Services PMIs, and job-related data. The Euro has strengthened against the British Pound this week. Inflation trends and the ECB’s monetary decisions are critical for markets. The ECB manages interest rates to keep price stability. High inflation may lead to rate hikes, boosting currency value.

Federal Reserve Rate Cut

With a high likelihood of a Federal Reserve rate cut, we should expect continued US Dollar weakness against the Euro. The market currently sees an 87% chance of a cut this month. Recent data shows US manufacturing has contracted for nine straight months, alongside a cooling labor market. This situation contrasts sharply with late 2023 when hopes for policy shifts began, resulting in a notable Dollar decline. Eurozone inflation, while mixed, remains healthier than in the US, likely preventing the European Central Bank from cutting rates as aggressively as the Fed. Eurostat’s latest flash estimate for November 2025 put headline inflation at a persistent 2.2%, slightly above the ECB’s target. This difference in monetary policy is why we expect further EUR/USD gains in the coming weeks. For traders in derivatives, this suggests buying call options on the EUR/USD, with strike prices above the 1.1650 level to profit from a possible rise toward 1.1700. Data releases like the US Services PMI and Eurozone PMI could trigger this move. Implied volatility for these options may increase before these events, offering opportunities for well-positioned traders. However, it’s essential to manage downside risk due to technical resistance around the 1.1643 mark and ongoing geopolitical tensions in Eastern Europe. Buying some inexpensive, out-of-the-money put options with a strike near 1.1500 can serve as a good hedge. This strategy helps protect our main bullish position if unexpected events cause a sudden reversal. Create your live VT Markets account and start trading now.

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