EUR/USD Weighs Downward Momentum
The EUR/USD is set for a weekly gain of 0.39%, limited to 1.1650, as traders anticipate the Federal Reserve’s next move. Economic data strengthened the US Dollar, trimming its earlier decline against the Euro. US inflation data met estimates, and the University of Michigan showed improved consumer sentiment.
Eurozone growth surpassed forecasts, with ECB’s Villeroy cautioning about inflation risks. The unresolved Russia-Ukraine conflict pressures the Euro, despite reports of progress in talks between major powers.
The US Core PCE Price Index, a key inflation metric, rose 0.2% in September, in line with predictions. Yearly Core PCE fell from 2.9% to 2.8%. December’s consumer sentiment improved, with the University of Michigan index rising to 53.3. Inflation expectations softened, easing long-term price concerns.
Market odds for a Fed rate cut held at 84%. The US Dollar Index fell by 0.09% to 98.98. EUR/USD remains around 1.1650, with potential to test lower levels. It risks bearish momentum, targeting key moving averages near 1.1600 and potentially dropping to 1.1500.
A Shift in Policy Divergence
We are looking at a very different picture today, on December 6, 2025, than the one back when the euro was consolidating at 1.1650. The European Central Bank’s concerns about downside inflation risks, which were just whispers then, have become reality. Eurozone inflation has since fallen steadily, with the latest figures from Eurostat showing the headline rate tracking at 2.2% for 2025, which keeps the ECB firmly in a dovish stance.
The policy divergence between the central banks is now much clearer and is the main driver of the currency pair. While markets back then were pricing in Federal Reserve rate cuts, the Fed remained patient as US Core PCE proved sticky, only recently approaching the 2.1% forecast for 2025. This has kept the US dollar relatively strong, pushing EUR/USD down to its current range around 1.0850.
For derivative traders, this means selling rallies in the EUR/USD remains the prevailing strategy. We believe that buying put options or implementing bear put spreads offers a defined-risk way to position for further downside or consolidation at these lower levels. Targeting strikes below 1.0800 in the coming weeks seems prudent given the weak European growth outlook, which the IMF projects at just 1.2% for this year.
Implied volatility is also much lower now than during the aggressive rate-hiking cycles we saw a couple of years ago. This makes long options strategies, like buying puts, more affordable for traders wanting to express a directional view. The current environment does not suggest sharp, unexpected moves, making it a favorable time to acquire options without paying excessive time premiums.
The ongoing geopolitical risks from the conflict in Ukraine, which were a factor then, continue to cap the Euro’s potential. This persistent headwind for the European economy supports strategies that benefit from a stagnant or falling EUR/USD. We see continued opportunities in selling out-of-the-money call options to collect premium, capitalizing on the pair’s inability to sustain any significant upward momentum.
