The Euro found some respite on Friday against the US Dollar, which erased Thursday’s gains as the Dollar Index fell. A risk-on impulse reduced the Dollar’s safe-haven appeal, while the European Central Bank’s uneventful policy decision left traders focusing on market sentiment. The EUR/USD trades at 1.1817, up 0.34%.
The EUR/USD Weekly Performance
The shared currency is on track to end the week with losses, likely consolidating within the 1.1750-1.1830 area. Recent US data showed Consumer Sentiment improved, though it did not boost the Dollar. Poor jobs data spurred speculation about the Federal Reserve possibly cutting rates more than twice this year.
Money markets briefly priced in 62 basis points of easing, before retreating to 54 basis points according to Prime Market Terminal data. Federal Reserve speakers expressed varied views, with Raphael Bostic being hawkish, and Mary Daly maintaining a neutral position. Vice Chair Philip Jefferson highlighted a stable labour market reducing inflation risks.
German industrial production declined 1.9% month-on-month in December, much worse than the anticipated 0.3% drop. Next week will see significant events, including ECB and Fed speeches, and key US reports such as Nonfarm Payrolls, Retail Sales, and the Consumer Price Index.
The EUR/USD technical outlook remains largely neutral to downward, with the pair showing a series of lower highs and lows but steady. If buyers reclaim the February 4 high of 1.1837, it could expose the 1.1900 level. However, if the pair falls below 1.1769, further losses are possible.
The Historical Context
A year ago, in early 2025, we saw the EUR/USD pair in a tight consolidation, with markets pricing in aggressive Federal Reserve rate cuts. The prevailing view was that weakening US jobs data would force the Fed’s hand, weighing on the dollar. However, the market’s expectation for over 50 basis points of cuts in 2025 proved to be overly optimistic.
Throughout 2025, US inflation remained more persistent than anticipated, with core PCE staying stubbornly above 3% for much of the year. This forced the Federal Reserve to hold rates higher for longer, delivering only one 25-basis-point cut late in the year. The expected dollar weakness never materialized, and the narrative shifted to US economic resilience.
As a result, the 1.1750 support level, which was seen as a key floor in early 2025, eventually gave way by mid-year. The pair trended steadily lower, spending the last quarter of 2025 trading closer to the 1.1200 handle. The ECB, facing sluggish growth highlighted by weak German data, maintained a dovish stance, further weighing on the Euro.
Looking at the most recent data from last month, January 2026, we saw this trend continue with US Nonfarm Payrolls coming in stronger than expected at 215,000. Conversely, Eurozone headline inflation for January eased to 2.5%, below forecasts and moving closer to the ECB’s target. This reinforces the policy divergence between a cautious Fed and an increasingly dovish ECB.
For the coming weeks, derivative traders should consider strategies that benefit from further dollar strength and euro weakness. Buying put options on EUR/USD or establishing bearish put spreads could offer a defined-risk way to position for a potential break below the 1.1200 level. These positions would capitalize on the ongoing fundamental momentum favoring the US dollar.
Potential Strategies for Traders
Furthermore, implied volatility on EUR/USD options appears low given the potential for policy surprises, particularly from the ECB. We believe purchasing straddles or strangles ahead of upcoming inflation reports or central bank meetings could be an effective strategy. This would profit from a significant price move in either direction, which seems likely as markets digest the divergent economic paths.
