EUR/USD has been declining, with the pair trading near 1.1720 amid a quiet New Year’s session. The downturn follows weaker-than-expected manufacturing activity in the Eurozone, pushing the Euro lower.
A contraction in Eurozone’s manufacturing activity was recorded in December, with PMI figures revised to 48.8, showing a faster downturn than prior months. German figures also reflected weaker activity with a revised PMI of 47.0.
French Manufacturing Activity
Despite this, France showed a slight increase in its manufacturing PMI to 50.7. The US PMI data is anticipated to display moderate expansion, with a preliminary reading of 51.8.
EUR/USD’s trend remains bearish, having breached trendline support from previous lows. Resistance is expected near 1.1764, with trend shifts confirmed at 1.1700.
The US Dollar weakened by around 14% against the Euro in 2025 due to concerns over US trade policies and economic deceleration. Market momentum may also be influenced by forthcoming US Nonfarm Payrolls data and the nomination of a new Federal Reserve Chair.
The EUR/USD is on a downward path, and we are now watching the 1.1700 level closely. This bearish sentiment is driven by fresh data showing that manufacturing activity in the Eurozone contracted more than we expected in December. The final HCOB Manufacturing PMI reading came in at 48.8, falling short of the preliminary 49.2 and showing a faster decline than the previous month.
All eyes are now on the upcoming US S&P Manufacturing PMI figures. The market consensus is for a reading around 51.8, which would confirm that the US manufacturing sector is still expanding, albeit at a slightly slower pace. This economic divergence between a contracting Eurozone and a growing US supports a stronger dollar in the short term.
For derivative traders, this suggests positioning for a potential drop below the 1.1700 support level. Buying put options with a strike price around 1.1680 or 1.1650 could be a strategy to capitalize on this downward momentum if the US data comes in strong. The cost of these options reflects the market’s current expectation of volatility.
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Looking ahead, the US Nonfarm Payrolls report at the end of next week will be the next major catalyst. A strong jobs number, similar to the solid 200,000+ figures we saw in late 2025, would reinforce the Federal Reserve’s hawkish stance compared to the European Central Bank. This would likely add further downward pressure on the EUR/USD.
We must remember that this recent dip for the EUR/USD comes after the dollar weakened by about 14% against the euro through most of 2025. This raises the question of whether the current move is a short-term correction or the beginning of a new, dollar-positive trend for 2026. The technical break below the mid-November trendline suggests the bearish case is gaining strength for now.
The uncertainty around who will replace Jerome Powell as the Federal Reserve Chair is another factor to consider. This unknown variable can increase implied volatility, making options contracts more expensive. Traders should factor this into their strategies, as sudden announcements could cause sharp price swings in the coming weeks.
