The Euro has pulled back from three-week highs after initial optimism over an EU-US trade deal, featuring 15% tariffs, has cooled down. The European Central Bank (ECB) is expected to maintain current interest rates but might hint at possible future reductions. Despite strong Eurozone PMIs, the EUR/USD pair is losing ground as traders adjust their positions ahead of the ECB’s decision. The Euro is trading around 1.1750, down from a peak of 1.1780 that it reached after the trade deal news. The appeal of the US Dollar as a safe haven is lessened in risk-on markets, which helps the Euro’s short-term upward trend. Reports say EU and US negotiators are close to a deal that would apply 15% tariffs on Eurozone goods, while excluding aircraft and other select items. This aims to avoid the previously discussed 30% tariff by President Trump and possible EU responses that could escalate into a trade war. Eurozone data is mixed. The German GfK Consumer Confidence Survey points to ongoing economic struggles, but PMI figures have been better than expected. Upcoming US Initial Jobless Claims and PMIs will add more context. The ECB’s rate announcement will be crucial, revealing hints about future policy changes. The preliminary PMI for the Eurozone indicates a slight rise in manufacturing activity, and the services sector has performed better than predicted. However, German consumer confidence has decreased, falling short of expectations. In the US, S&P Global PMIs for services and manufacturing are expected to increase, indicating strong economic activity. The EUR/USD pair remains unstable, with technical indicators suggesting possible corrections as traders take profits before the ECB meeting. Key support for the pair is at 1.1740, with resistance at 1.1790 and longer-term highs around 1.1830. The ECB’s Deposit Facility Rate stays at 2%, and markets are keenly awaiting further policy direction. The Euro’s recent pullback signals that it’s time to reassess trading positions, shifting focus from the potential trade deal discussed by Mr. Trump to the differences in central bank policies. This shift implies that any strength in the pair might be temporary and presents a trading opportunity. Recent comments from the ECB suggest rate cuts could come as early as June, supported by over 80% of economists in a recent Reuters poll. The currency pair has demonstrated high implied volatility, making options more expensive. This indicates that the market anticipates significant price movements. This environment is suitable for strategies that can profit from a downward move or decreasing uncertainty. The economic data suggests a cautious approach, with the latest German GfK Consumer Confidence dropping to -29.7, its lowest in months. Although Eurozone PMI data showed a slight rise to a six-month high of 47.9, it still falls below 50, indicating contraction. Historically, when the ECB has indicated a shift to easing before the US Federal Reserve, the EUR/USD has typically weakened for an extended period. Given strong resistance near the 1.1790 level, we are considering strategies such as buying put options or setting up bear put spreads. These strategies would profit from a decline in the EUR/USD, allowing us to take a controlled risk while speculating on the currency weakening due to anticipated policy easing. This approach helps us benefit from the Euro’s fundamental challenges. For traders who think the pair will stay in a range while the market processes information, selling out-of-the-money strangles could be a good strategy. This involves selling both a call and a put option to collect the premium from high implied volatility. The position will be profitable as long as the currency pair remains between the two strike prices until expiration.

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