The EUR/USD faces pressure with the US Dollar gaining strength amid geopolitical tensions. A break below the 100-day Simple Moving Average (SMA) at 1.1665 is expected to lead to further losses. The pair recently reached a four-week low around 1.1670, maintaining its downward trajectory from recent highs. Despite this, dovish expectations from the US Federal Reserve may limit the dollar’s gains, offering some support to the Euro.
On technical indicators, the Moving Average Convergence Divergence (MACD) shows bearish momentum, while the Relative Strength Index (RSI) indicates diminishing upward potential. The 100-day SMA remains a key support, with a breakout likely to favour sellers. Until broken, the pair could stabilise above this level, needing an RSI above 50 to regain bullish momentum. The Euro benefits from the European Central Bank’s (ECB) stance of not further cutting rates, offering some currency leverage.
The Euro Overview
The Euro is the second most traded currency globally, with the ECB responsible for monetary policy. Economic data such as GDP, inflation, and trade balances significantly affect its value. The Euro’s strength is also closely tied to interest rate decisions by the ECB, with higher rates generally boosting its appeal.
Looking back at the end of 2025, we saw the EUR/USD pair was under significant pressure, testing the critical 100-day moving average support near 1.1665. The market was watching to see if this level would hold, with rising geopolitical tensions giving strength to the US dollar. That pivotal support has now been broken in the first days of January.
The break was driven by fresh data that has shifted the outlook we held in late December. Last week’s US jobs report for December 2025 showed a robust addition of 210,000 jobs, beating expectations and pushing back on the idea of a dovish Federal Reserve. This has been compounded by US inflation data, with the latest CPI figure holding firm at 3.4%, challenging predictions of a swift return to the 2% target.
Weak Eurozone Economic Data
On the other side of the pair, recent data from the Eurozone has been less encouraging, reinforcing the currency’s weakness. Germany, the bloc’s largest economy, reported a 0.5% month-over-month decline in industrial production for November 2025, signaling that economic headwinds are persisting. This divergence in economic health between a strong US and a sluggish Eurozone is now the primary driver for the pair.
For derivative traders, this confirms a bearish outlook in the near term. We should consider buying put options to capitalize on further downside, targeting the October 2025 lows around the 1.1550 area as the next logical support level. Historically, when we saw a similar break of the 100-day SMA in the second quarter of 2024, the pair experienced a swift 200-pip decline over the following weeks.
Implied volatility has begun to tick higher, reflecting the renewed uncertainty about the path of central bank policy. This makes outright long option positions more expensive, so traders might look at vertical put spreads to define risk and reduce the initial cost. We anticipate volatility to remain elevated ahead of the next ECB and Fed meetings later this month.
