EUR/USD has risen for the second consecutive day, trading above 1.1870. The Sentix Index for the Eurozone indicates a brighter economic outlook, driven by positive risk sentiment and a weakening US Dollar. The decline of the Dollar is linked to expectations that the Federal Reserve may cut interest rates soon. This has allowed the Euro to gain strength, bolstered by positive economic data from the Eurozone. Additionally, Japan’s Prime Minister’s significant electoral victory has influenced currency movements, strengthening the Yen. ECB policymakers, including President Christine Lagarde, will be speaking, but are expected to maintain their current monetary policy. On the other hand, there may be differing views from US Federal Reserve speakers about monetary policy. On Monday, the Euro increased by 0.44% versus the US Dollar, reflecting the Dollar’s weaknesses and rising expectations for a Fed rate cut in the near future. Recent US economic reports, particularly disappointing employment figures, have led to higher demands for a rate cut. Market attention is on upcoming important US data releases, such as the Nonfarm Payrolls report and the Consumer Price Index. EUR/USD has gained momentum, breaking past technical support levels. Important support is found at 1.1815, with targets around 1.1954. Traders are eyeing the 1.1895 level, which could help limit previous declines. The EUR/USD is showing strength and is trading above 1.1870 as the week begins. This trend stems from the belief that the Federal Reserve will cut rates while the European Central Bank will keep their policy stable. This difference in monetary policy is a key factor behind the Euro’s rise against a weaker Dollar. To strengthen this outlook, last week’s US jobs report for January revealed only 95,000 new jobs, which was much lower than the expected 180,000. This has increased speculation about a Fed rate cut. Meanwhile, Eurozone inflation data from two weeks ago remained steady at 2.9%, making it hard for the ECB to ease its policy. This reinforces the current market divergence. For those considering options, the upward trend suggests buying call options with a strike price around 1.1900 or 1.1950. However, one-month implied volatility on EUR/USD has increased from 6.5% to 8.0% in the last week as we approach major data releases. This rise means options are pricier, reflecting market uncertainty. Given the higher cost of options, a bull call spread might be a wiser strategy. This involves buying a call option at a lower strike price, like 1.1850, and selling another at a higher strike price, such as 1.1950. This method reduces initial costs while still allowing profits from a continuing increase in the pair’s value. Reflecting on 2025, the Dollar started to lose momentum from earlier aggressive rate hikes. The current market appears to continue along that path, where weak US data is now leading to expectations for rate cuts. We need to be mindful that a new easing cycle may be beginning. This week is important, with US Retail Sales on Tuesday, the delayed Nonfarm Payrolls report on Wednesday, and the CPI inflation data on Friday. Any unexpectedly strong US economic data could quickly reverse the Dollar’s recent decline, so traders should be alert for possible sharp pullbacks. Speeches from Fed and ECB officials today will influence the immediate market direction. We anticipate that Fed Governors Miran and Waller will adopt a dovish tone, reinforcing the case for lower rates and potentially boosting EUR/USD further. Any unexpected hawkish comments from them or from ECB President Lagarde may lead to significant intraday volatility.

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