EUR/USD moved in a tight range near 1.1900 in the Asian session on Wednesday, with trading restrained ahead of the US Nonfarm Payrolls (NFP) report. The next moves may also depend on US inflation figures due on Friday.
Market pricing shifted after weak US Retail Sales data, adding to expectations of multiple Federal Reserve rate cuts this year. The European Central Bank has been on hold since ending a year-long run of rate cuts in June last year, with firmer growth reducing pressure for further easing.
Fed Independence Pressure
Comments about Federal Reserve independence added to pressure on the US Dollar. US President Donald Trump said he might sue Fed chair nominee Kevin Warsh if rates were not lowered, and Fed Governor Stephan Miran said 100% central bank independence is impossible.
The Euro is used by 20 EU countries in the Eurozone and was 31% of global foreign exchange transactions in 2022, with average daily turnover above $2.2 trillion. EUR/USD accounts for about 30% of all FX transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The ECB holds eight policy meetings a year and targets price stability, with a 2% inflation goal measured by HICP. Germany, France, Italy and Spain make up 75% of the Eurozone economy, and trade balance data can also affect the Euro.
Last year, we saw a clear fundamental backdrop favoring a higher EUR/USD, with the market expecting multiple rate cuts from the US Federal Reserve. The European Central Bank, in contrast, was seen as being on hold, creating a policy divergence that supported the euro. This led many to believe that any dips in the pair were buying opportunities.
Policy Divergence Inverts
Fast forward to today, February 11, 2026, and the narrative has inverted, with the pair now trading near 1.0750. The US economy has proven more resilient than anticipated, with the most recent Nonfarm Payrolls report in January showing a robust gain of 255,000 jobs. This persistent strength has forced the Fed to maintain a higher-for-longer stance on interest rates.
On the other hand, the Eurozone’s economic picture has softened considerably from the resilient one we saw in 2025. Recent data showed the bloc’s economy contracted by 0.1% in the final quarter of 2025, raising expectations that the ECB may be the first to cut rates this year. This policy divergence now strongly favors the US dollar.
Inflation data further supports this view, as the latest US Consumer Price Index for January came in hotter than expected at 3.4%. This is notably above the Eurozone’s latest inflation reading of 2.7%, giving the ECB more justification to ease policy sooner than the Fed. For traders, this means the path of least resistance is now to the downside.
Given this reversal, we believe the strategy of buying dips from last year should be replaced with selling rallies in the coming weeks. Traders could consider using call options with strikes around 1.0850 or 1.0900 to hedge or establish short positions, viewing these levels as a potential ceiling. This allows for participation in a downward move while defining risk.
Furthermore, with central bank meetings on the horizon, implied volatility may rise. This presents an opportunity for traders who expect the pair to remain in a new, lower range to sell option strangles. This strategy would be a shift from the directional bets we favored last year when political pressure on Fed independence was a significant, but now distant, factor.
