EUR/USD increased over 1.3%, reaching a five-year high of 1.2082, after US President Donald Trump signalled comfort with a weaker Dollar. This caused a sell-off, with the US Dollar Index (DXY) declining to 95.79.
Trump, during a Fox News interview, showed no concern about the Dollar’s fluctuations and indicated tariffs on South Korean goods due to unmet trade agreements. The tariffs stand at 25%, adding pressure to the US currency.
Economic Indicators Show Weakness
Economic indicators in the US displayed a drop in Consumer Confidence to 84.5 in January, the lowest since 2014. Additionally, the average ADP Employment Change weakened from 8,000 to 7,750.
In Europe, European Central Bank (ECB) officials maintained a stable economic policy. Joachim Nagel stated no need for immediate interest rate changes, while Martin Kocher suggested preparedness for policy adjustments.
EUR continues to show strength against major currencies, notably rising 1.41% against the USD. The EUR/USD uptrend remains buoyant, with the next resistance levels at 1.2150 and 1.2200, barring a decline below 1.2000.
The President’s explicit comfort with a weaker dollar gives us a clear signal for the weeks ahead. This political green light, combined with the “sell America” narrative fueled by new tariffs, solidifies the case for being long EUR/USD. The surge past the psychological 1.2000 level confirms strong momentum that we should follow.
Strategy and Investment Opportunities
Weakening US economic data, particularly the collapse in consumer confidence to 84.5, supports this bearish dollar view. Looking back, this is a dramatic fall from the more stable readings near 108 that we saw in the final quarter of 2025. This downturn will likely tie the Federal Reserve’s hands, making it very difficult for them to sound hawkish at their upcoming meeting.
On the other side of the trade, the European Central Bank appears content to let the Euro strengthen. The steady commentary from officials is consistent with the cautious, data-dependent stance we observed in the final months of 2025. This policy divergence between a potentially dovish Fed and a neutral ECB should continue to propel the pair higher.
For our positions, buying EUR/USD call options with expirations in the next one to two months seems prudent to capture further upside toward the 1.2150 and 1.2200 targets. However, with the Relative Strength Index (RSI) showing extremely overbought conditions near 77, we should be prepared for a potential short-term pullback. This suggests that using any dips toward the 1.2000 level to enter new long positions might be a better strategy than chasing the rally at its peak.
