EUR/USD traded near 1.1520 in Asian hours on Monday after small gains in the prior session. The daily chart shows the pair still moving within a descending channel, keeping the bias bearish. The pair has fallen below the nine-day Exponential Moving Average (EMA), with that EMA turning lower, and it remains under the 50-day EMA. This keeps both short-term pressure and the wider trend tilted to the downside.

Oversold Signals And Momentum

The 14-day Relative Strength Index (RSI) has dropped below 30, which points to oversold conditions. The RSI move lower suggests selling momentum is still present rather than a clear end to the fall. Support is first seen at the seven-month low of 1.1468. Below that, levels to watch include the channel base near 1.1430 and the nine-month low of 1.1391. Resistance is seen at the nine-day EMA near 1.1650. A move higher would need a daily close above the 50-day EMA at 1.1742, then the channel top near 1.1790, with 1.2082 as the highest level since June 2021. Looking back at the analysis from late 2025, we saw a strong bearish momentum for EUR/USD as it approached seven-month lows near 1.1468. The pair was trading within a descending channel, and the Relative Strength Index signaled oversold conditions. However, the fundamental picture has changed significantly in the first quarter of 2026.

Macro Drivers And Policy Divergence

The primary driver for us now is the clear divergence in inflation data between the two economic blocs. The Eurozone’s flash CPI estimate for February 2026 came in higher than expected at 2.8%, showing persistent price pressures. Conversely, the latest U.S. inflation figures have cooled to 2.5%, reinforcing the case for the Federal Reserve to begin its easing cycle. This data has forced a shift in central bank expectations, which we believe is fueling the pair’s recent recovery towards the 1.1600 handle. We now see the market pricing in a delayed rate cut from the European Central Bank, possibly not until Q3 2026. Meanwhile, futures markets indicate a greater than 70% probability of a Federal Reserve rate cut by its June meeting. For derivative traders, this environment suggests considering strategies that benefit from a potential grind higher, while hedging against volatility. We see value in buying put options with a strike near 1.1450 as a hedge against any sudden reversal or hawkish surprise from the Fed. The Cboe EuroCurrency Volatility Index (EVZ) has risen to 8.5, indicating that the market is pricing in more movement in the coming weeks. On the upside, we think a bull call spread could be an effective strategy to capture further gains with limited risk. For example, buying an April 1.1650 call while simultaneously selling an April 1.1750 call could profit from a move through the old nine-day EMA resistance level mentioned in last year’s analysis. This structure takes advantage of the current upward momentum driven by policy divergence. Create your live VT Markets account and start trading now.

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