EUR/USD failed to build on its overnight rebound from 1.1835–1.1830 and traded in a tight range in Asia on Thursday. It was near 1.1875, little changed on the day, and close to an over one-week high set on Tuesday.
After a strong US Nonfarm Payrolls report on Wednesday, markets reduced bets on faster Federal Reserve easing. Comments from Kansas City Fed President Jeffrey Schmid, warning that more cuts could keep inflation higher for longer, helped the US dollar stay above a nearly two-week low and weighed on EUR/USD.
Fed Cuts And Dollar Support
Markets still price in at least two 25 basis point Fed rate cuts in 2026. Concerns about the Fed’s independence and a generally positive risk tone limited demand for the safe-haven dollar.
The euro found support from expectations that the European Central Bank will keep rates unchanged for the rest of the year. No major Eurozone data is due on Thursday, while US Weekly Initial Jobless Claims are due later.
Attention then turns to US consumer inflation data on Friday. The figures are expected to shape views on the Fed’s rate path and influence the next move in EUR/USD.
The EUR/USD is trapped, and we see little reason to take a strong directional view before tomorrow’s US inflation data. The strong US jobs report from yesterday, which showed a gain of 280,000 jobs in January, gives the Federal Reserve cover to remain cautious. This is why the dollar is finding support and capping the pair below 1.1900.
Trading Plans Around CPI
The main conflict we see is the market betting on two Fed rate cuts this year, while Fed officials sound hesitant. This makes sense given that we battled sticky inflation through most of 2025, with the annual rate averaging around 3.7%. Tomorrow’s consumer inflation report is therefore critical to see if that disinflationary trend is continuing.
On the other side of the pair, the European Central Bank seems firmly on hold, which is supporting the euro. Eurozone inflation, which came in at 2.9% for January, remains too high for them to consider cutting rates. This policy difference is preventing the EUR/USD from falling sharply.
For now, with the pair so range-bound, we should consider options strategies that benefit from a sharp move after tomorrow’s news. Buying a strangle, for instance, would position us to profit from a spike in volatility, regardless of the direction. This is a prudent way to trade ahead of a major, market-moving data release.
If tomorrow’s inflation number comes in hotter than expected, we should be ready to buy puts on the EUR/USD, as this would likely push back expectations for Fed rate cuts and strengthen the dollar. Conversely, a soft inflation reading would signal that cuts are coming, making calls on EUR/USD attractive. The market will react quickly to any deviation from the expected 0.3% monthly increase.
Looking into the coming weeks, we must be prepared for the current 1.1830-1.1900 range to break. The inflation data will likely set the tone, confirming or denying the market’s view of two rate cuts. We will use the market’s reaction to establish a new directional bias for the remainder of the quarter.
