During Friday’s North American session, the EUR/USD pair held steady, closing November and the week up by 0.81% and 0.59%, respectively. It is now trading at 1.1601, with chances for further gains as the Federal Reserve is likely to cut rates in December, with an 87% probability. Speculation around a Fed rate cut has increased, despite mixed data from the US. Producer inflation has stabilized, and unemployment claims have decreased. Conversely, Eurozone data has shown stronger economic signs, with the Harmonized Index of Consumer Prices (HICP) exceeding expectations and nearing 3%.

Eurozone Economic Indicators

Germany and Spain’s HICP rose, and France’s GDP exceeded forecasts, supporting the Euro’s strength. The European Central Bank (ECB) has indicated that its easing cycle may be over, which bodes well for the EUR/USD pair. If the EUR/USD breaks through key technical levels, it may see an upward trend. However, falling below 1.1550 could bring a decline toward 1.1500. Next week’s US economic calendar features important data releases that may impact the markets. The Euro is strong against other major currencies, especially the Japanese Yen, mainly due to the weak US Dollar. Recent economic data and signals from the ECB have highlighted the Euro’s resilience, despite the mixed outlook in the US.

Policy Divergence Between Fed and ECB

With an 87% chance of a Federal Reserve rate cut in December, there is a clear divergence between a dovish Fed and a stabilizing European Central Bank. The ECB has indicated an end to its easing, especially as inflation data from Germany and Spain has been stronger than anticipated. This environment supports a bullish outlook for the EUR/USD pair. To take advantage of this, consider buying EUR/USD call options that expire in late December 2025 or January 2026. The latest Eurozone core HICP figures remained steady at 2.9%, while the US Core PCE fell to 2.8% in October, solidifying the fundamental case. Strike prices around 1.1650 or even 1.1700 could offer good profit potential if expected policy moves occur. For a more conservative strategy to lower upfront costs, a bull call spread is effective. We could buy a call option with a strike price just above the current market price, like 1.1625, and sell a call with a higher strike, such as 1.1725. This approach limits our risk to the net premium paid while still allowing us to benefit from a moderate rally. The main risk to this strategy is the upcoming US economic data, especially next week’s ISM and employment reports. Strong numbers could lead markets to decrease the chances of a December rate cut, resulting in a quick reversal of the dollar’s weakness. Therefore, we should manage our position sizes carefully before these key releases. Looking back to the 2022-2023 period, the Fed’s aggressive rate hikes overwhelmed the ECB, resulting in significant dollar strength. The current situation in late 2025 appears to be the opposite, suggesting that the trend of dollar weakness against the Euro could continue for some time. Create your live VT Markets account and start trading now.

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