The Euro has edged lower after Kevin Warsh’s nomination as the next Federal Reserve Chairman, with EUR/USD retracing from 1.2000 to the lower 1.1900s. The Eurozone and German GDP figures outdid expectations last quarter, but this has not bolstered the currency pair significantly, with support at 1.1900 holding for now.
US President Trump confirmed Warsh’s nomination, expected to maintain the Fed’s independence. Political developments suggested a US government shutdown might be avoided, supporting the US Dollar. US economic data showed mixed results, with Factory Orders exceeding forecasts despite higher Jobless Claims and a widened trade deficit. US Producer Price Index data for December becomes the next focal point on Friday.
Euro Resilience Against Major Currencies
The Euro has shown resilience against major currencies, notably strengthening against the Japanese Yen. In Europe, a strong Euro raises concerns about product competitiveness and potential rate cuts. Eurozone data reported a steady 0.3% GDP growth in Q4, beating forecasts. German inflation data indicated a slight decrease in annual price pressures in January, with GDP growth accelerating to 0.3% in Q4.
The EUR/USD bears have taken control, with support at 1.1895 under pressure. Bearish momentum is increasing, with technical indicators reflecting a declining trend. Resistance levels include the January 29 high near 1.2000 and January 27 high at 1.2082.
The nomination of Kevin Warsh as the next Fed Chairman suggests a more hawkish central bank is on the horizon, strengthening the U.S. dollar. This is creating a growing policy divergence against a European Central Bank that is now openly worrying about the Euro’s strength. We believe this fundamental shift will be the main driver for the currency pair in the coming weeks.
Even though recent GDP and inflation data out of Germany and the broader Eurozone were better than expected, the market has ignored them. The focus has shifted to the first official calls for interest rate cuts from ECB members since we heard similar chatter back in the summer of 2025. This dovish turn is likely to put a cap on any significant Euro rallies.
Market Expectations and Derivative Trading
Market expectations are already adjusting rapidly to a more aggressive Fed policy. The CME’s FedWatch Tool now indicates a greater than 70% probability of a 25-basis-point rate hike by the March meeting, a dramatic jump from just 45% last week. This pricing action provides a strong tailwind for the dollar.
For derivative traders, this environment makes buying EUR/USD put options an attractive strategy. This allows for capitalizing on a potential drop towards support levels at 1.1850 and then 1.1730, while strictly defining risk to the premium paid. The increasing bearish momentum on technical charts supports initiating such positions.
The options market is also signaling more turbulence ahead, with the Cboe EuroCurrency Volatility Index (EVZ) having risen by 15% this week. This indicates that traders are pricing in larger price movements, which can increase the potential payout for long volatility positions like put options. An increase in volatility confirms that the market is taking the potential for a significant downtrend seriously.
We have seen this pattern before, particularly when looking back at the 2014-2015 period from our perspective in 2025. During that time, the Fed began signaling policy normalization while the ECB was still easing, leading to a sustained and powerful rally in the dollar. The current setup, with a hawkish Fed chair and a nervous ECB, echoes that period and supports a bearish stance on the EUR/USD.
