The Euro is close to two-month lows around 0.8700 after failing to sustain gains at 0.8740. In thin year-end trading, the Pound is showing a stronger performance than the Euro.
The EUR/GBP pair saw a short-lived recovery earlier in the week but met resistance before 0.8740, then dropped during the European session. The Euro currently trades at 0.8710, slightly above two-month lows of 0.8705.
Technical Indicators Mixed
Technical indicators paint a mixed picture on the 4-hour chart with the Moving Average Convergence Divergence (MACD) slightly positive, and the RSI at 41, failing to surpass the 50 mark. Interim support is identified at 0.8707, while upside resistance is seen around the 0.8740 mark.
The Euro is under pressure due to lack of major Eurozone news, continuing tensions in Ukraine, and the situation between China and Taiwan. Although the Euro shows some resilience, the broader bearish trend persists unless there is a breach of the 0.8740 resistance level.
Today, the Euro shows varying changes against major currencies, with the strongest performance against the New Zealand Dollar. The Euro dropped by 0.07% against the US Dollar and gained 0.14% against the Pound.
With the EUR/GBP pair testing two-month lows near the 0.8700 support level, we see a clear bearish sentiment for the Euro. The recent failure to hold above 0.8740 suggests that sellers are in control during this period of thin holiday trading. This weakness presents an opportunity for traders positioned for a further decline.
The Pound’s Relative Strength
The Pound’s relative strength is supported by recent economic data, which we note is more resilient than that of the Eurozone. For instance, the latest UK inflation figures from November 2025 came in at 2.9%, slightly below forecasts, whereas the Eurozone’s flash estimate for December remained stubbornly higher at 3.2%. This divergence gives the Bank of England less reason to signal imminent rate cuts compared to the European Central Bank.
Geopolitical tensions are weighing more heavily on the Euro, given the Eurozone’s sensitivity to energy markets linked to the situation in Ukraine. We have seen European natural gas futures (TTF) climb 6% over the last two weeks on reports of stalled talks, a risk that affects the UK economy to a lesser degree. This external pressure helps explain why the Euro is on the defensive.
For derivative traders, this situation suggests buying put options with a strike price below the 0.8700 support level, perhaps targeting 0.8670 in the coming weeks. Given that trading volumes are historically 35% lower during the last week of the year, any break of this key support could be sharp. This makes puts an effective tool to capitalize on a potential downleg while defining risk.
On the other hand, we must watch the 0.8740 level as a key resistance point. A decisive move above this area would invalidate the immediate bearish outlook. Traders could consider selling out-of-the-money call options with a strike near 0.8775 to collect premium, betting that the pair’s upside remains capped for now.
The technical indicators show limited momentum, which means the market could consolidate before its next major move. However, the path of least resistance appears to be downwards. We should therefore structure trades that profit from either a gradual slide or a sudden break lower as liquidity returns to the market in early January 2026.
