EUR/USD remains weak, trading at four-week lows below 1.1700 amidst a strong US Dollar. Traders are focusing on US macroeconomic releases and events in Venezuela.
Geopolitical tensions after the US intervention in Venezuela have had minimal impact on market sentiment. Asian stocks rose, and European markets pointed to a mild positive opening.
US Economic Indicators Influence
The US Dollar started 2026 strong, boosted by upbeat US home sales and jobless claims data. These releases support the Fed’s cautious easing approach amidst persistent inflationary pressures.
The US ISM Manufacturing PMI is expected to show slight improvement, with attention on December’s Nonfarm Payrolls report to assess US labour market momentum. EUR/USD could potentially decline further, with technical indicators pointing to bearish momentum.
The pair faces support near 1.1670, with further support around the 50% Fibonacci retracement at 1.1650 and the 1.1615 area. A rise above 1.1715-1.1720 might ease negative pressure.
The ISM Manufacturing PMI is a key indicator of US factory activity, where a reading above 50 suggests expansion and is bullish for USD, while a reading below 50 indicates contraction. The ISM Manufacturing Employment Index is also a vital indicator of US labour market conditions.
The US Dollar is starting 2026 on a strong footing, pushing the EUR/USD below the 1.1700 level for the first time in four weeks. Looking back at late 2025, unexpectedly solid US home sales and jobless claims figures have forced a rethink of a rapid Federal Reserve easing cycle. We’ve seen the market-implied probability of a March 2026 rate cut, as tracked by futures markets, drop from over 75% to just under 60% in the last week alone.
While the US intervention in Venezuela is a significant geopolitical event, financial markets are currently looking past it. The focus is squarely on the US economic calendar, as this will provide the real clues for the Fed’s path. This week’s data, especially the labor market report, will be critical in confirming whether the economy is strong enough to keep rates higher for longer.
Upcoming Market Events
Traders should watch today’s ISM Manufacturing PMI release very closely for a short-term signal. The market expects a slight improvement to 48.3 for December 2025, but a surprise reading above the 50 mark would indicate a return to expansion and likely trigger further USD buying. This could make buying short-dated EUR/USD put options an attractive way to position for a continued downward move.
The main event, however, will be Friday’s Nonfarm Payrolls report, with economists forecasting a gain of around 165,000 jobs. A number significantly above this would reinforce the Fed’s cautious stance and could see EUR/USD test its next major support level at 1.1650. This is the level that corresponds with the 50% Fibonacci retracement from the rally we saw in November and December of last year.
Given the potential for a large price swing following Friday’s jobs report, implied volatility has been ticking higher. One-week implied volatility for EUR/USD has climbed to 7.5%, showing that options traders are pricing in more movement than they were a few weeks ago. This environment could favor strategies like straddles or strangles for those who anticipate a breakout but are unsure of the direction.
From a technical standpoint, the momentum is clearly bearish, with indicators like the RSI nearing oversold levels but not yet turning up. A failure to reclaim the 1.1720 area suggests that any upward movement is likely to be temporary. Therefore, we should view any rallies as opportunities to position for further downside, targeting the 1.1650 and potentially 1.1615 support zones.
