EUR/USD has stayed steady despite uncertainty over EU–US trade policy. The pair is trading above what interest rate differentials imply, suggesting much US policy risk is already priced in.
Over the coming weeks, EUR/USD is expected to drift back towards the upper end of its recent trading range. It is not expected to set new highs.
Policy Risk Largely Priced In
Expansionary fiscal measures and a recovery in production are factors that may support the euro. However, limited wage growth and the absence of a pronounced credit cycle are expected to restrict further gains.
The European Central Bank’s effect on the euro is described as limited. No ECB rate changes are anticipated through 2026.
It appears EUR/USD is stable, even with ongoing discussions around EU-US trade policy that dominated headlines in late 2025. With the pair currently trading around 1.0850, much of the risk from US policy seems to be already reflected in the price. We expect the currency to slowly move toward the upper part of its recent range in the coming weeks.
Support for the Euro comes from fiscal measures still flowing through the economy and a modest recovery in industrial output. For instance, the latest Eurozone Manufacturing PMI for January 2026 ticked up slightly to 50.2, indicating slight expansion. However, this is unlikely to fuel a major rally on its own.
Options Positioning For Range Bound Upside
The upside for the Euro is firmly capped by weak domestic factors. We saw that wage growth in the final quarter of 2025 was a lackluster 2.8%, and the most recent ECB bank lending survey shows credit conditions remain tight. With the European Central Bank not expected to adjust interest rates at all this year, a significant breakout above the 1.1100 level is improbable.
Given this view, selling out-of-the-money puts could be a viable strategy to collect premium, betting that the pair will not fall significantly. Alternatively, a more direct approach would be to look at bull call spreads for March or April expiries. For example, buying a 1.09 call and simultaneously selling a 1.11 call captures the potential upward drift while defining risk.
This spread structure aligns well with the expectation of a move toward the range highs without breaking them. The sold 1.11 call helps finance the purchase of the 1.09 call, making it a cost-effective way to position for a modest and limited appreciation. It protects against the scenario where wage and credit growth remain too weak to push the pair into a new, higher trading environment.
