The EUR/USD pair continued its downward trend, reaching the 1.1750 area on Tuesday, with a decrease of 0.2%. The end-of-year holiday period has led to low trading volumes and a decrease in global market activity, limiting any potential momentum. Markets will close on Thursday for the New Year, further reducing activity in the latter half of the week.
The Federal Reserve’s latest minutes reveal a cautious outlook, with a majority of policymakers favouring further rate cuts if US inflation metrics decrease. However, the accuracy of American inflation data is questioned due to missing components and assumptions in the Consumer Price Index (CPI) data. This uncertainty affects both FOMC votes and trader expectations.
Technical Analysis And Market Trends
In technical terms, EUR/USD is trading at 1.1752, maintaining a bullish bias above the 50-EMA at 1.1675 and the 200-EMA at 1.1393. The 50-EMA supports the trend, with RSI at 60.22 indicating a bullish outlook. Momentum is cooling slightly, with the Stochastic at 77.61. A sharp decline below 1.1675 could lead to a deeper pullback, while sustained trading above this level supports positive momentum.
We see the EUR/USD is slowly declining, but trading volumes are very low as we close out the year. This thin liquidity means we should consider reducing position sizes to avoid being caught by sudden, unexpected price swings. The market is essentially on hold until participants return in full force in January.
The Federal Reserve is leaning towards cutting rates, but they are acting cautiously while waiting for more reliable inflation data. The last core Personal Consumption Expenditures (PCE) report for November 2025 showed a drop to 2.8%, continuing the cooling trend we saw emerge from the highs of 2022 and 2023. However, the known issues with data collection are making both the Fed and us hesitant to act decisively on these numbers.
Meanwhile, the European Central Bank appears content to hold its main interest rate steady at 3.0% as we head into the new year. At their last meeting in December 2025, officials signaled a wait-and-see approach, putting them on a different path than the Fed. This policy divergence, where the U.S. looks to cut rates while Europe holds, could provide underlying support for the Euro in the coming months.
Market Strategies And Future Outlook
Given the slow price grind and strong technical support around the 1.1675 level, selling out-of-the-money puts with short-term expiries is a viable strategy. This allows us to collect premium during this quiet holiday period. It is a bet that the currency pair will not break down significantly before normal trading volumes resume.
Looking further into the first quarter of 2026, the ongoing uncertainty surrounding the quality of U.S. economic data suggests volatility will likely return. This makes buying longer-dated options, like straddles, an interesting play on a potential price breakout in either direction. The current market quiet may offer a chance to purchase this potential for future volatility at a reasonable price.
