The EUR/USD currency pair is expected to stabilise between 1.1690 and 1.1770 in the short term. Recent movements saw the Euro surge to 1.1768 before settling at 1.1724, marking its largest single-day increase in over four months at 0.68%.
Looking ahead, the Euro started the week on a softer note, but experienced a strong rally, which could extend further. However, breaking the resistance at 1.1805 seems unlikely at this time. The risk remains on the upside as long as the Euro does not fall below the strong support level of 1.1560.
Expectations In Late 2025
In late 2025, we saw the Euro rally sharply, leading to an expectation that it would consolidate between 1.1690 and 1.1770. While the broader risk was to the upside, a significant break above 1.1805 seemed unlikely at the time. The key was to watch the strong support level at 1.1560 to maintain that bullish bias.
Since then, the fundamental picture has changed, as the Eurozone’s December 2025 inflation report showed a dip to 1.9%, below expectations and reinforcing a dovish stance from the European Central Bank. In contrast, the latest US jobs report for December showed wage growth remaining robust at a 4.2% annual rate, keeping pressure on the Federal Reserve. This economic divergence has since pushed EUR/USD below that critical 1.1560 support level we identified last year.
Given this new context, derivative traders should consider strategies that account for a potential break lower. Buying March put options with a strike price around 1.1400 would offer downside protection and profit from a continued slide. For a more conservative approach, a bearish put spread, such as buying a 1.1400 put and selling a 1.1250 put, would limit the upfront cost while defining risk.
Evaluating Volatility Trends
Implied volatility in EUR/USD has also ticked up, with one-month volatility now at 7.8% compared to an average of 6.5% in the fourth quarter of 2025. This makes selling options more attractive for collecting premium, though it carries higher risk. Selling out-of-the-money call options with a strike above the old 1.1770 resistance level could be considered for those who believe any rally will be capped.
