Next week, the European Central Bank meeting is approaching and differences in policy with the Federal Reserve are expected to boost the Euro.

Notice, options traders anticipate that the rise of the euro will receive new momentum next week, as the interest rate decision by the European Central Bank (ECB) is expected to highlight its policy divergence with the Federal Reserve. According to statistics from the Depository Trust & Clearing Corporation (DTCC), the most active strike price for trading this month is at every 1.18 to US$1, with the majority of the underlying value concentrated in contracts expiring on December 18th and 19th (the window for the ECB interest rate decision). These fund flows indicate that the euro exchange rate will trade above this level by the time the decision makers conclude the meeting. This week, the Federal Reserve cut interest rates for the third consecutive time, and after hawkish comments from ECB Executive Board Member Isabel Schnabel, the euro has hovered near a two-month high. Currently, options sentiment for the ECB decision on December 18th is the most bullish in nearly three months. Buying volatility ahead of the decision's announcement is the most expensive in three months, which traders attribute to Schnabel's comments. Even if the ECB does not hike rates next year, Morgan Stanley strategists still expect the euro to rise to $1.30 by the second quarter of 2026. Forex traders familiar with fund flows reveal that hedge funds have been the main drivers of the bullish price action on the euro this week, as they have been buying both vanilla and exotic options that will profit when the euro strengthens.