EUR/USD consolidates around 1.1607 as the US Dollar maintains strength in a calm market environment. The pair holds above the 21-day SMA, with the upcoming ECB meeting anticipated to keep rates unchanged, while the Fed is likely to cut rates soon.

Eurozone consumer prices rose by 2.2% YoY in November from 2.1% in October; Core HICP remained at 2.4% YoY. The technical setup is bullish, with the 100-day SMA capping the upside and a break above it needed for further gains.

Positive Consolidation

Momentum indicators suggest positive consolidation, with the RSI above 50 and MACD showing a positive shift. Upcoming data, including Eurozone’s PPI, PMI, and US’s ADP Employment Change, could influence EUR/USD movements.

The US Dollar showed variable performance against major currencies, performing strongest against the Japanese Yen. The ongoing analysis was authored by Vishal Chaturvedi, an experienced macro-focused research analyst at FXStreet.

Caution is advised as market analyses may involve risks and uncertainties. The statements herein do not equate to buy or sell recommendations, requiring thorough consideration for investment decisions. FXStreet and authors are not registered investment advisors.

Given the divergence in monetary policy, we see a clear opportunity building in the EUR/USD pair. The market is signaling a high probability of a Federal Reserve rate cut next week, with fed funds futures pricing in an 85% chance of a 25-basis-point reduction. This expectation has only solidified after last week’s Continuing Jobless Claims data for November 2025 came in at 1.9 million, the highest level we’ve seen all year.

Monetary Policy Divergence

In contrast, the European Central Bank appears firmly on hold, especially with the latest Eurozone inflation ticking up to 2.2%. The ECB has been consistent in its messaging since the fall of 2025, prioritizing inflation control over stimulating growth. This fundamental split between a dovish Fed and a steady ECB creates a strong tailwind for the Euro against the Dollar.

For derivatives traders, this sets up a favorable environment for bullish strategies in the coming weeks. We believe buying near-the-money call options on EUR/USD with an expiry after the December 18 ECB meeting is a straightforward way to play this anticipated upside. This approach allows us to capture potential gains if the pair breaks above the key 100-day moving average and targets the 1.1700 level.

To manage risk, we might also consider a bull call spread, which would involve buying a call at a lower strike price and selling one at a higher strike. This strategy would cap our potential profit but also significantly lower the initial cost, which is prudent given that implied volatility has crept up to 7.8% ahead of the central bank meetings. This setup offers a defined-risk way to position for a move higher that could be triggered by Friday’s US Personal Consumption Expenditures (PCE) data.

Looking back, this price action is reminiscent of the pattern we observed in the second quarter of 2025, when a similar policy divergence led to a sustained rally. The key support to watch right now is the 21-day simple moving average. As long as the price holds above this level, our bullish bias remains intact, and we would view any dips toward it as potential entry points for new positions.

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