EUR/USD remained stable at 1.1645 amid geopolitical tensions in the Middle East and a lack of new catalysts from the Eurozone. The US economic indicators, such as the Producer Price Index and Retail Sales, affected expectations regarding the Federal Reserve’s potential rate cut in January.
Despite strong US data, the US Dollar Index decreased by 0.14% to 99.05. The PPI for November rose to 3%, surpassing forecasts, while Retail Sales increased by 0.6% month-on-month, exceeding expectations of 0.4%.
Federal Reserve Stance
Federal Reserve officials maintained their stances, with some expressing concerns over inflation staying above desired levels. Meanwhile, the Atlanta GDP Now model raised its Q4 2025 GDP estimate from 5.1% to 5.3%.
The Eurozone’s economic docket was relatively empty, while the US continued to see an active agenda. Upcoming events include Eurozone inflation figures and US Jobless Claims alongside regional Fed surveys.
EUR/USD shows a bearish momentum, with the Relative Strength Index below its neutral level. A break above 1.1700 may lead to testing higher levels, whereas a dip below 1.1600 could see further declines. Meanwhile, the Euro has displayed strength against the Japanese Yen recently.
The EUR/USD is trading in a tight range as we digest the strong US economic data from late last year. The hot producer price index and resilient retail sales from November 2025 are forcing a rethink of how quickly the Federal Reserve will cut rates. This underlying dollar strength is putting a cap on any significant upward moves for now.
Inflation and Interest Rates
We have now seen the official December 2025 inflation numbers, which confirm this sticky price pressure. US CPI came in at 3.4%, reinforcing the message from the earlier PPI data and making a January rate cut from the Fed highly unlikely. Meanwhile, Eurozone inflation also remains elevated at 2.9%, suggesting the European Central Bank may also have to hold its restrictive stance.
For derivative traders, this creates an opportunity to profit from the current lack of direction. With the pair caught between support at the 200-day average near 1.1579 and resistance around 1.1716, selling option volatility through strategies like iron condors could be effective. This approach collects premium as long as the market stays within this expected range in the coming weeks.
However, the geopolitical situation and upcoming data releases could spark a breakout. With market volatility currently low, similar to the levels we saw in early 2024, buying options is relatively inexpensive. A long strangle, involving the purchase of both a call and a put option, would position a trader to profit from a large price swing in either direction.
Given the risk-off mood from tensions in the Middle East, hedging against a sudden downturn is also prudent. A sharp escalation could send investors flocking to the safety of the US dollar, breaking key support levels. Buying out-of-the-money puts on the EUR/USD offers a cost-effective way to insure portfolios against such a move.
