EUR/USD traded near 1.1770 in early Asian hours on Friday, staying above 1.1750. The Euro’s upside was limited amid speculation about European Central Bank leadership.
The Financial Times reported that ECB President Christine Lagarde was expected to leave before the end of her eight-year term. Analysts said an early exit could allow Emmanuel Macron and Friedrich Merz to choose a successor before the April 2027 French presidential election.
Dollar Gains On Fed Hike Risk
The US Dollar found support after stronger US labour market data and hawkish Federal Open Market Committee minutes. The minutes said some Federal Reserve officials saw rate rises as possible if inflation stays above the 2% target, and backed a “two-sided” approach to future policy.
Markets were set to watch US flash GDP for Q4 and the Personal Consumption Expenditures report later on Friday. In Europe, preliminary Purchasing Managers’ Index readings for the Eurozone and Germany were also due.
Looking back to late 2025, we saw the EUR/USD pair stalling around 1.1770 due to a clear divergence in central bank outlooks. The US Federal Reserve was signaling a readiness to hike rates further, while the European Central Bank faced leadership uncertainty. This created a tense balance in the market.
That tension broke after the Q4 2025 US GDP and PCE data came in stronger than anticipated, confirming the Fed’s hawkish stance. The US economy grew at an annualized 2.9% in that quarter, keeping inflation pressures alive. As a result, we saw the dollar strengthen, pushing EUR/USD down through the 1.1600 level in January 2026.
Options Market Prices In Breakout
Given the persistent speculation over ECB President Lagarde’s tenure, implied volatility in EUR/USD options has risen. The one-month volatility index, which was near 6.5% in late 2025, is now trading closer to 8.2% as of this week. This environment suggests that buying options, such as straddles, could be effective to trade a potential breakout without picking a specific direction.
We are now focused on the upcoming US January Core PCE data, which many analysts expect to show a 0.4% month-over-month increase. Another hot inflation print would validate the hawkish Fed minutes from 2025 and could trigger another leg down for the pair. A move towards the 1.1450 support level would then be on the table.
On the other hand, Eurozone PMI data has shown some stabilization, with the February 2026 flash composite reading at 50.6, just above the neutral 50 mark for the first time in six months. This modest improvement offers some support for the Euro. Any sign of weakness in the upcoming US data could therefore cause a sharp reversal.
Recent CFTC data shows that speculative net short positions against the Euro have increased by roughly 15% since the start of 2026. This build-up of bearish bets means traders should be prepared for a potential short squeeze if US economic data unexpectedly disappoints. This makes holding long call options an interesting hedge against a sudden upward move.
