EUR/USD rose 0.27% to near 1.1800 in European trading on Wednesday as the US Dollar fell after President Donald Trump’s State of the Union address. The US Dollar Index (DXY) slipped 0.2% to about 97.65.
In his speech, Trump referred to his economic record and criticised a Supreme Court ruling against his tariff policy, calling it “unfortunate”. He said tariffs were a driver of an “economic turnaround”.
Shift In Market Drivers
Market focus is also on the Federal Reserve, which is not expected to cut interest rates at its March and April meetings. In Europe, attention is turning to Germany’s flash Harmonised Index of Consumer Prices (HICP) for February, due Friday.
The German HICP is forecast to rise 0.5% month-on-month after a 0.1% fall in January, with the annual rate seen at 2.1%. HICP is published monthly by Destatis and is harmonised across the EU for comparison.
Technically, EUR/USD traded near 1.1805, with a 14-day RSI in the 40.00–60.00 range and price near the 20-day EMA at 1.1800. A daily close above 1.1835 may target 1.1900, while a move below 1.1742 could point to 1.1670.
The date today is 2026-02-25T11:11:04.818Z.
A year ago, we were watching EUR/USD attempt to break out of a descending triangle near 1.1800, driven by political commentary. Today, the pair is trading significantly lower around 1.0850, and our focus has shifted entirely to central bank policy divergence. This fundamental change in market drivers means that last year’s trading playbook is obsolete.
Options And Technical Outlook
In February 2025, the outlook was for a Federal Reserve that was unlikely to cut rates, which was seen as a positive for the dollar. Now in 2026, with the latest US CPI data showing inflation remaining sticky at 3.1%, the Fed is maintaining its hawkish stance, causing significant dollar strength over the past twelve months. The market is pricing in a “higher for longer” reality, a much stronger conviction than we had last year.
Meanwhile, the Euro’s position has weakened considerably from the optimism seen in 2025’s German inflation expectations. Recent Eurostat figures show headline inflation in the Eurozone has fallen to 2.5%, and economic growth has stagnated near zero. This puts increasing pressure on the European Central Bank to consider rate cuts sooner than the Fed, creating a powerful headwind for the Euro.
For traders, this suggests positioning for further downside in EUR/USD. Buying put options with a strike price around 1.0700 expiring in the next 60 days could be a prudent way to capitalize on the diverging economic paths. This strategy offers a defined risk while providing exposure to a potential break of recent lows.
Implied volatility in the pair has been relatively subdued, which may present an opportunity. We see potential for sharp moves around upcoming central bank meetings in March and April. A long straddle could be used to profit from a significant price swing in either direction, regardless of the trend, if you expect a major policy surprise.
The technical picture has confirmed this bearish shift, as the 1.1835 resistance level from last year is now a distant memory. Key resistance for us is now the psychological 1.1000 level, with critical support located near the yearly low of 1.0720. Any rallies towards 1.0950 should be seen as opportunities to initiate or add to short positions.
