Insights 
VT 
The Euro has risen 0.3% against the US Dollar, making it a mid-performing currency among the G10. This increase is attributed to market focus on a potentially dovish Federal Reserve, suggesting USD weakness rather than direct EUR strength.
The euro area’s final services PMI exceeded expectations at 53.6, with Germany at 53.1 and France slightly above neutral at 51.4. Recent policymaker comments have been neutral to hawkish, focusing on inflation risks, while the political situation in the euro area has shown improvement, evidenced by the narrowing of the bund/BTP spread to 70 basis points, the lowest since 2010.
Euro’s Rally
The Euro’s rally has pushed it to the upper 1.16s, levels last seen in late October. If this trend continues, it could reach the mid-1.17s seen in early October. Momentum supports these gains, with the Relative Strength Index (RSI) above 60, equalling levels from mid-September. The near-term trading range is expected to remain between 1.1620 and 1.1720.
We are seeing the Euro strengthen against the Dollar, driven primarily by diverging central bank outlooks. Recent US inflation data, coming in at 2.8% for November, fuels speculation of a more dovish Federal Reserve heading into 2026. In contrast, persistent core inflation in the Eurozone, last reported at 3.1%, keeps the European Central Bank on a more hawkish footing.
The political risk in the Eurozone continues to fade, which is a significant tailwind for the currency. We see the spread between Italian and German 10-year bonds has now tightened to 68 basis points, a level that underscores market confidence. Looking back at the European debt crisis of 2011-2012, when this same spread exceeded 500 basis points, today’s stability is remarkable.
Options Trading Opportunity
For options traders, this environment of steady upward momentum suggests selling out-of-the-money EUR/USD put options could be a viable strategy to collect premium. The reduced political fragmentation, evidenced by the tight bond spreads, is suppressing implied volatility, making options relatively inexpensive. This may favor strategies like bull put spreads to define risk while capitalizing on the expected grind higher towards the mid-1.17s.
We are currently testing the upper end of the recent 1.1620 to 1.1720 range, with the Relative Strength Index holding strong above 60. Modestly positive economic data, like the final November Services PMI coming in at 53.8, provides fundamental support for a potential breakout. Futures traders should watch for a sustained move above 1.1720 as a signal to potentially add to long positions.
