The Euro is gaining strength as the Dollar weakens. This shift is due to the Federal Reserve cutting interest rates recently and weaker US economic data. The Fed lowered rates by 25 basis points, bringing them to a range of 3.50% to 3.75%. Fed Chair Jerome Powell indicated a willingness to adjust based on future events. This decision caused the EUR/USD pair to rise to 1.1742, recovering from a previous low of 1.1682. In the US, jobless claims increased to 236,000 for the week ending December 6, higher than the prior 192,000. At the same time, the US Goods and Services Trade Balance improved, narrowing to –$52.8 billion in September. The Euro is also benefiting from the European Central Bank’s (ECB) steady approach, as confirmed by President Christine Lagarde, who indicated no immediate policy changes. In Europe, important economic data, such as inflation rates and indicators from Germany, France, Italy, and Spain, also influence the Euro’s value.

Technical Analysis on EUR/USD

Technical analysis indicates that the EUR/USD pair may continue to rise, breaking above the 1.1700 level and aiming for 1.1800. However, if it falls below 1.1700, it could test the 100-day Simple Moving Average at 1.1641. With the Federal Reserve cutting interest rates just yesterday and hinting at more reductions, there is a noticeable split in policy between the Fed and the ECB. The ECB is currently maintaining its policies, which creates a supportive environment for the Euro. This difference is the main factor driving the currency markets as we approach the end of the year. This outlook is bolstered by the latest inflation data from late November 2025, showing the US Consumer Price Index (CPI) cooling to 2.8%, while the Eurozone’s Harmonized Index of Consumer Prices (HICP) remained sticky at 3.1%. Additionally, a weaker-than-expected US nonfarm payroll report from earlier this month, with only 150,000 jobs added, further supports the idea of a slowing US economy. This data gives the Fed room to ease monetary policy into 2026.

Strategy Considerations for EUR/USD

Given the current momentum, we should consider strategies that capitalize on a rising EUR/USD. Buying call options with strike prices above the current level of 1.1742, targeting 1.1800 or even 1.1850 for a January 2026 expiration, could be an effective approach. This strategy allows us to manage risk while taking advantage of potential Dollar weakness. We have experienced policy divergence before, often in the opposite direction. For example, during 2014-2015, the ECB’s aggressive easing led to the EUR/USD falling from around 1.4000 to below 1.1000. Now, as the Fed leads the easing cycle, we could see a sustained upward trend for the EUR/USD pair in the coming months. We should also monitor implied volatility in the options market, which has been increasing. Although the current trend appears clear, upcoming speeches from Fed officials Goolsbee and Hammack could introduce uncertainty and lead to short-term price fluctuations. Therefore, while we are optimistic about the Euro, we should structure our positions to handle potential pullbacks, possibly using spreads rather than outright long calls. Create your live VT Markets account and start trading now.

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