The Euro (EUR) is outperforming all G10 currencies, except the Japanese Yen (JPY), with a 0.3% gain as it enters Monday’s NA session.
German and French manufacturing PMIs are slightly below the neutral threshold, with Germany at 48.2 and France at 47.8. The ECB’s neutral stance and central bank policy outlook provide fundamental support for the EUR.
Yield Spread Insights
The 2-Year Germany-US yield spread is just below its recent 14-month high. Preliminary euro area CPI data is anticipated on Tuesday, with 12 ECB speaking engagements potentially shifting messaging on inflation risks.
The EUR has surpassed its 50-day moving average of 1.1617 for the first time since mid-October, last closing above this level in early October. The RSI indicates a bullish tilt, moving towards 60, with expected resistance levels around 1.1650, 1.17, and 1.1750. The near-term range is projected between 1.1580 and 1.1680.
The Euro is demonstrating notable strength as we begin the month, gaining against nearly all other major currencies. This upward movement has pushed the EUR/USD past its 50-day moving average of 1.1617 for the first time since mid-October. The positive momentum suggests traders should anticipate a test of resistance levels in the near term.
Weak manufacturing numbers from Germany and France are being largely overlooked by the market. This is because the focus has shifted entirely to central bank policy and the persistent gap between German and US bond yields. The 2-year Germany-US yield spread is holding near a 14-month high, providing a strong fundamental reason for capital to favor the Euro.
Euro’s Path Forward
This focus on inflation will be tested with tomorrow’s preliminary Euro area CPI data for November. Recent flash estimates from Eurostat showed that core inflation remained sticky above the European Central Bank’s target, coming in at 2.7% for the year ending in October 2025. Another high reading would likely reinforce the market’s view that the ECB cannot afford to signal any rate cuts soon.
Given this bullish momentum and the defined technical levels, we see an opportunity in using options to express a cautiously optimistic view. Traders could consider buying call options with a strike price near the 1.1700 resistance level. This allows for participation in further upside if the upcoming inflation data is strong, while limiting downside risk.
We remember how the ECB aggressively shifted its policy during the inflationary period of 2022-2023, and the market has not forgotten. Some ECB policymakers have already started to mention upside risks to inflation again, making their 12 speaking engagements this week critical events. Any further hawkish messaging will likely add fuel to the Euro’s rally.
For the coming weeks, we should watch the near-term range between support at 1.1580 and resistance around 1.1680. A decisive break above the initial resistance at 1.1650 could open the door to a move towards 1.1700 and 1.1750. A failure to hold above 1.1580 would suggest this current strength is temporary.
