The EURUSD fell to a low of 1.1702, dropping below the swing area low of 1.17109. It quickly bounced back above the 100-hour moving average at 1.17334, but traders had trouble finding a clear direction. A lot of option expirations at the 1.1700 level put downward pressure on the price as traders approached the expiration time. After a brief rise above the 100-hour moving average, the price returned to a larger swing area.

European Markets Close

As European markets closed, the EURUSD was in a state of uncertainty. The weekly low occurred on Monday at 1.16142, serving as a key swing level for buyers. The week’s high was on Thursday at 1.1788, creating resistance for sellers. As the weekend neared, prices stayed close to the weekly highs and above the 50% midpoint of July’s trading range. For a downward trend to continue, the price must break below the 200-hour moving average at 1.1677. Based on Michalowski’s observations, derivative traders should prepare for a notable price movement. The current tight trading range signifies low market volatility, which often comes before a big directional shift. Recently, implied volatility in the EUR/USD one-month options market has dropped to near yearly lows. This means options are relatively inexpensive for strategies aiming to capitalize on a breakout.

Market Positioning

The economic landscape suggests a potential downside move for the pair. Recent data shows that US Q2 GDP grew at a strong 2.4%, while business activity in the Eurozone, especially Germany’s manufacturing PMI at a concerning 38.8, indicates a slowdown. This economic gap generally boosts the dollar’s strength against the euro over time. We are also monitoring differing inflation rates and how central banks are responding. Eurozone inflation is high at 5.3%, but the European Central Bank might have to pause rate hikes due to a sluggish economy. Conversely, the Federal Reserve is facing strong US economic data and might keep a firmer approach to ensure inflation returns to target rates. Recent positioning data from the Commodity Futures Trading Commission shows that large speculators still hold long positions in the euro but have been reducing these positions over the past few weeks. This suggests that their confidence in the euro’s strength is decreasing, which aligns with the struggle at major resistance levels. A decrease in bullish bets could lead to a swift sell-off if key support levels are broken. Therefore, we see a chance to buy volatility with strategies like long straddles or strangles that could benefit from significant movements either way. For a more directional approach, buying puts with a strike price below the 200-hour moving average at 1.1677 might be a good way to prepare for a confirmed bearish breakdown. The goal is to use the current low volatility to enter positions before the market reaches a clear direction. Create your live VT Markets account and start trading now.

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