The Euro has strengthened against the US Dollar, rising above 1.1800. This increase comes from speculation that there will be intervention to support the Japanese Yen. Meanwhile, the USD Dollar Index dropped to 97.53, hitting levels not seen since September 2025. Economic reports show that American consumer sentiment is improving, with the University of Michigan’s index rising to 56.4. Business activity in the US indicates growth, though there may be a slowdown in the first quarter of 2026. In Europe, PMI data offers a mixed view. The Composite and Services PMI fell short of expectations, while the Manufacturing PMI showed slight growth. Important upcoming reports will include Eurozone GDP figures and speeches from ECB officials, which could influence market trends. In the US, investors will keep an eye on Durable Goods Orders and the Federal Open Market Committee’s policy decisions.

Technical Factors

From a technical standpoint, the EUR/USD pair has moved past resistance levels, indicating an upward trend aiming for 1.2000. The Euro is the second most traded currency globally and reacts to ECB interest rate changes and economic data. Strong economic reports and a positive Trade Balance usually boost the Euro’s value, while weak data can cause it to drop. With EUR/USD decisively breaking above 1.1800 based on intervention rumors, we are seeing increased market volatility. The one-month implied volatility for the pair has surged from about 6.5% to over 8% in just one day, making options strategies more costly but potentially more rewarding. This means the market is preparing for bigger price movements in the coming weeks. Given this new upward trend, we should pursue strategies that benefit from a rising Euro. Buying call options with strike prices near the 2025 high of 1.1918 or the psychological level of 1.2000 is a direct approach to capitalize on this momentum. For those concerned about high premiums, a bull call spread could provide a more budget-friendly option to target a specific upside while managing risk. However, caution is warranted with the Federal Open Market Committee meeting approaching. Futures markets suggest a 92% chance that the Fed will keep rates unchanged, but any hawkish comments from Chairman Powell could lead to a sharp reversal in the dollar’s recent weakness. Purchasing out-of-the-money put options can act as a low-cost hedge to protect any bullish positions from a sudden pullback.

Japan’s Previous Interventions

It’s important to recall Japan’s past unilateral interventions from late 2022. The initial impact was strong but often faded quickly without sustained support. A coordinated move with the Fed is different but, until confirmed, this rumor-driven rally remains uncertain. Any indication that this is merely a “rate check” rather than a plan for action could allow the dollar to recover quickly. Finally, the focus isn’t just on the dollar; upcoming Eurozone GDP figures pose a threat to the Euro’s success. Economists expect growth for the fourth quarter of 2025 to be only 0.1%, a figure that could limit the Euro’s rally if confirmed. A weaker-than-expected GDP could make it hard for the pair to maintain levels above 1.1800, regardless of dollar weakness. Create your live VT Markets account and start trading now.

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