EUR/USD traded in a narrow range during Wednesday’s Asian session, staying just below the mid-1.1800s. The pair paused after bouncing from the 1.1800 area, a one-and-a-half-week low.
Markets are waiting for the FOMC Minutes for clues on the Federal Reserve’s rate-cut path. Traders are pricing in a Fed cut in June and at least two rate cuts in 2026, which could cap demand for the US dollar.
Fed Minutes In Focus
The US dollar also came under pressure due to concerns about Fed independence and developments in US-Iran talks. Iran’s Foreign Minister Abbas Araqchi said there was broad agreement on guiding principles to address the nuclear dispute.
The euro stayed under pressure as expectations for an ECB rate cut resurfaced, driven by signs of weakness in the Eurozone. Germany’s ZEW sentiment dipped to 58.3 in February from 59.6 in January, while the Eurozone Economic Sentiment Index slipped to 39.4 from 40.8.
EUR/USD is hovering near 1.0820 and struggling to pick a clear direction after last week’s drop. The market looks cautious, pulled between mixed signals from the Federal Reserve and the European Central Bank. This pause gives traders time to think about positioning for the weeks ahead.
A near-term Fed rate cut now looks less likely, especially after January US inflation came in at 3.3%, still above the Fed’s target. Strong retail sales data also supports the case for the Fed to wait, possibly until the third quarter. As a result, options that benefit from a stronger dollar—such as buying EUR/USD puts—are drawing more interest.
Options Positioning And Volatility
In Europe, expectations for an earlier ECB rate cut are growing as the Eurozone economy slows. German industrial production fell 1.6% in December 2025, highlighting ongoing weakness in the region’s largest economy. This widening gap between the two economies may make selling EUR/USD call spreads attractive for collecting premium, since a strong rally may be hard to sustain.
This is a big shift from late 2025, when the consensus expected coordinated rate cuts from both central banks through 2026. The continued strength of the US economy has forced a rethink of that outlook.
Even so, implied volatility remains fairly low. That may change as key central bank meetings in March get closer. More traders are looking for ways to position for downside without paying too much upfront. One example is a bearish risk reversal, where an out-of-the-money call is sold to help fund the purchase of a put.
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