Insights 
VT 
The Euro Support From ECB’s Stance
Economists predict the ECB will hold deposition rates this year with no changes expected next year. This presumption supports the Euro’s current upward trajectory. However, definitive gains require surpassing the 200-day SMA at 1.1625, bearing in mind the lower trading volumes due to the US holiday.
This week’s currency heat map features the USD’s weakest performance against major currencies, notably dropping the most against the Japanese Yen.
Market Sentiment and Technical Analysis
Looking back at the market sentiment from late 2021, we can see a bullish case was being built for the EUR/USD based on divergent central bank policies. The key takeaway then was the need for a sustained break above the 200-day moving average, a level that ultimately failed to hold. This past price action serves as a crucial reminder that technical confirmation is essential before committing to a directional trend.
Currently, we see a similar dynamic emerging, but with fresh data supporting the narrative. The latest US Consumer Price Index for October 2025 came in at 3.1%, slightly below expectations and feeding the view that the Federal Reserve may begin a shallow rate-cutting cycle in early 2026. This contrasts with the Eurozone, where Harmonised Index of Consumer Prices remains stickier at 2.9%, prompting ECB officials to maintain a firmly neutral stance.
This policy divergence makes long EUR/USD positions attractive for the coming weeks. We believe derivative traders should consider buying call options on the EUR/USD, perhaps with a strike price around 1.0950 and an expiration in February 2026. This strategy provides upside exposure while defining risk, a lesson we learned from the failed rally in late 2021.
The critical technical barrier we are watching now is the 100-day moving average, currently sitting near 1.0910. A decisive move above this level would signal that momentum is building more substantially than it did in the past. Implied volatility for EUR/USD options has risen to 7.5% for three-month contracts, up from 6.8% last month, suggesting the market is anticipating a larger price move.
Given the US Dollar’s broad weakness against commodity currencies, as seen in historical data tables, traders could also explore selling out-of-the-money USD call options against the Australian or New Zealand Dollar. This provides a way to collect premium while betting on continued US dollar softness. However, this should be done with caution, as year-end flows can sometimes lead to unexpected dollar strength.
