The European Central Bank (ECB) plans to keep policy rates unchanged for September. Any suggestion for a rate cut would face significant challenges. For a cut to be on the table, economic data would need to weaken, and growth forecasts would have to be lowered. During Lagarde’s press conference, the EUR/USD fell to 1.1729 but quickly rose again, peaking at 1.1788. This level is close to highs from early July: 1.17894 on July 7 and 1.1787 on July 6. If it breaks past this, the next targets to watch are 1.1808 and 1.1830 from July 3 and July 1.

Euro USD Trend

If you are hopeful about the recent rise in EUR/USD, a drop to the 1.17529 to 1.1769 zone would be a concern. If this range is broken, it could reduce current positive sentiment. Assuming no policy changes happen, we recommend that derivative traders prepare for Euro strength against the U.S. dollar. The high bar for a potential September rate cut supports the currency’s strength. Recent data shows that Eurozone core inflation unexpectedly increased to 2.9% in May, making it hard for officials to consider easing rates. In contrast, the United States is facing softer data, with the unemployment rate climbing to 4.0%. This gives its central bank a stronger reason to think about rate cuts. Futures markets show over a 60% chance of a U.S. rate cut by September, highlighting a clear policy gap that favors a rising EUR/USD. For derivative traders, this indicates a good opportunity to buy call options to benefit from the expected increase.

Derivative Trading Strategy

The strong rebound after the press conference shows a positive market outlook. A clear break above the resistance at 1.1789 would signal us to increase long positions, targeting the 1.1830 area. This move could also raise implied volatility, making options strategies more appealing. It’s important to manage risk by monitoring support levels between 1.1752 and 1.1769. If this area breaks down, it would mean the bullish momentum has weakened, prompting us to either reduce long exposure or buy protective put options. Historically, trading above 1.1830 has often led to larger gains over several weeks. Create your live VT Markets account and start trading now.

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