EUR/USD slipped below 1.1900 in the North American session as comments from Federal Reserve officials reduced expectations for near-term rate cuts. The pair was at 1.1895 after a daily high of 1.1928, while US equities turned lower.
US Retail Sales for December were 0% MoM, below forecasts of 0.4% and November’s 0.6%. The Employment Cost Index rose 0.7% QoQ in Q4 2025, down from 0.8% and below estimates.
Fed Stance Supports Dollar
Dallas Fed President Lorie Logan said policy is neutral and that inflation risks are tilted to the upside. Cleveland Fed President Beth Hammack said rates should not change until inflation reaches 2%, and noted tariffs remain a factor.
Europe had no major data releases on Tuesday, while ECB President Christine Lagarde said inflation is expected to stabilise near 2% in the medium term. Money markets priced nearly 60 basis points of Fed cuts, while the ECB was expected to keep rates unchanged through the year, with the first move seen as a rise.
On 12 February, the Eurozone includes speeches by Mario Cipollone and Isabel Schnabel. The US calendar includes Nonfarm Payrolls, the Unemployment Rate, and remarks from Jeffrey Schmid, Michelle Bowman and Beth Hammack.
Technically, EUR/USD is range-bound after a peak at 1.20979 and a low at 1.1765, with softer RSI momentum. Resistance levels include 1.1900, 1.1974, 1.1996 and 1.2000, while support sits at 1.1850, 1.1800, 1.1765, the 100-day SMA at 1.1681, and the 200-day SMA at 1.1625.
Strategy And Risk Considerations
The US Dollar is strengthening as Federal Reserve officials talk tough on inflation, pushing the EUR/USD below the 1.1900 mark. This is happening even though we saw weak US economic data for the end of 2025. The market is now paying more attention to the Fed’s words than to signs of a slowing economy.
We saw in late 2025 that consumer spending stalled, with retail sales growth at zero. However, with the latest inflation report for January 2026 coming in at 3.2%, which is well above the 2% target, the Federal Reserve’s cautious stance seems justified. This mismatch between slowing growth and sticky inflation suggests the path of least resistance for the dollar is higher.
The key takeaway is the growing difference in policy between the Fed and the European Central Bank. While the market was recently pricing in over a half-point of Fed rate cuts for this year, officials are now actively pushing back against that idea. This is reminiscent of the policy divergence we saw a few years ago that strongly favored the dollar as the ECB held back.
Given this situation, we should consider buying put options on the EUR/USD to protect against a drop below the 1.1800 level. The upcoming Nonfarm Payrolls report is a major risk event that could easily push the pair toward the February 6th low of 1.1765 if the job numbers are strong. Increased volatility is expected around that release, making options a useful tool to manage risk.
For those with a stronger bearish conviction, establishing short positions in EUR/USD futures contracts could be a direct way to act on the Fed’s hawkish tone. We should watch the 1.1850 level closely as a first target for this downward move. If that support breaks, it opens the door to test the 1.1800 figure in the coming weeks.
