The EUR/USD pair is facing losses as the US Dollar gains strength from positive economic data in the US. The Euro has dropped from a high of 1.1790 to 1.1710, although it is still on track for a 0.8% weekly gain after bouncing back from 1.1555 last week. The European Central Bank’s recent choices and positive comments from President Christine Lagarde initially supported the Euro. However, disappointing Eurozone data has weakened this support. The German IFO Business Climate Index showed a slight improvement, but some subindexes fell short of expectations.

Positive US Data

In the US, business activity exceeded predictions, especially in the services sector. A drop in weekly Initial Jobless Claims further strengthened the US Dollar. Among major currencies, the Euro performed particularly well against the Japanese Yen. A possible trade deal between the US and the EU, which includes 15% tariffs with specific exemptions, has contributed to optimism about the Euro. Still, a decline in Durable Goods Orders in the US indicates a cautious economic outlook. US economic signals suggest that the Federal Reserve may stick with its current interest rate policy. Right now, the market feels like a tug-of-war, making it risky to bet on the direction of EUR/USD in the near term. The dollar’s strength is backed by solid data, including Initial Jobless Claims near historic lows at around 210,000 and the S&P Global US Services PMI rising to 54.8, indicating healthy growth. Given this volatility, traders should consider strategies that benefit from a range-bound market, like selling out-of-the-money call and put options. Optimism from Ms. Lagarde’s remarks is being tempered by the Eurozone’s economic challenges. Weak German IFO data is a key concern, supported by recent figures showing a 0.4% decline in Germany’s industrial production. This suggests limited upward potential for the Euro, making it hard for the pair to break decisively above 1.1800 without new positive news.

Market Outlook

In the US, strong labor and service data contrast with leading indicators like falling Durable Goods Orders. Historically, significant drops in these orders often precede economic downturns, similar to what we saw before the 2008 crisis. This conflicting data suggests the Federal Reserve is likely to keep its current stance, making traders alert to any new inflation data. The Euro’s strength against other currencies, particularly the Yen, indicates that investors are not abandoning the currency but are instead repositioning their capital. This supports the idea of pair trading, such as going long on EUR/JPY to take advantage of Euro strength while hedging against broad dollar moves. Implied volatility on EUR/USD options has recently been around 7.0%, reflecting uncertainty and providing an opportunity to collect premium if the pair consolidates as expected. Create your live VT Markets account and start trading now.

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