EUR/USD traded near 1.1905 on Tuesday, little changed and close to one-week highs after a two-day rise. The US Dollar stayed weak ahead of US data releases and a moderate risk-on mood.
US employment worries persisted after last week’s weak jobs figures. White House adviser Kevin Hassett said job growth may slow in coming months due to migration policies and higher productivity, ahead of January Nonfarm Payrolls (NFP) on Wednesday.
Eurozone Inflation And ECB Rate Outlook
In Europe, ECB President Christine Lagarde said inflation is expected to stabilise at 2% over the medium term. The ECB’s recent guidance pointed to steady interest rates in the coming months.
Europe’s calendar was light, with attention on US Retail Sales and the ADP 4-week average. These releases may shape expectations before Wednesday’s NFP.
Markets priced a 17% chance of a Fed cut in March and 34% in April, with June near 75%, based on CME FedWatch data. Probabilities were above 70% for at least one more cut before year-end.
US Retail Sales were forecast to rise 0.4% in December after 0.6% in November, and 0.3% ex-autos after 0.5%. Technically, resistance sat near 1.1925 and 1.1970, with support at 1.1895, 1.1834, and 1.1820; RSI was near 60 and MACD remained positive.
Looking Back At The 2025 Rate Cut Narrative
Looking back at our analysis from this time in 2025, we saw the EUR/USD pair pushing towards 1.19 on the back of a weak dollar and expectations of Federal Reserve rate cuts. The market was pricing in a 75% chance of a rate cut by June 2025, fueled by concerns over a softening US jobs market. We can see how that sentiment positioned the Euro for a significant rally.
That forecast played out, as the Nonfarm Payrolls data for January 2025 did come in below expectations, prompting the Fed to cut rates twice by autumn of that year. This policy divergence pushed the EUR/USD to a peak near 1.23 in the third quarter of 2025. However, US inflation proved unexpectedly stubborn, remaining above 3.5% and forcing the Fed to reverse its course by late last year.
As of today, February 10, 2026, the situation has completely flipped. US inflation is currently at 3.1%, still well above the Fed’s target, while Eurozone inflation has cooled to 2.8%. The latest US jobs report for January 2026 showed a surprisingly strong gain of 353,000 jobs, dismissing any near-term recession fears.
For derivative traders, this means the bullish euro trend that we saw building early last year is over. With the Fed now taking a harder line on inflation than the European Central Bank, options strategies should favor a stronger dollar. Consider buying EUR/USD puts or selling call spreads to capitalize on a potential slide back towards the 1.0700 level seen in late 2025.
The contrast with last year is stark, as data from the CME FedWatch Tool now shows the probability of a Fed rate cut in March 2026 has fallen to less than 20%. This data, combined with robust US economic performance, suggests implied volatility in the pair may rise. Traders should position for a range-bound or downward-trending EUR/USD in the weeks ahead.
