The Euro has fallen for five days straight because of an unfavorable trade deal between the US and the EU. This has hurt the economy in the Eurozone. Currently, the EUR/USD pair is under pressure but has slightly recovered from its recent lows. During the European session, the Euro continued its decline but managed a small rebound after hitting new multi-week lows. Nevertheless, selling pressure pushed the pair back down, with increasing criticism from European countries about the trade agreement adding to the strain.

American Currency Boost

On the flip side, the US Dollar has gained from recent agreements, excluding those with Canada and Mexico. Key US economic data, such as Consumer Confidence and JOLTs Job Openings, will be closely watched, along with the Federal Reserve’s policy decisions and the Nonfarm Payrolls report. Recent data from the European Central Bank (ECB) shows that inflation trends are low. Year-end Consumer Price Index (CPI) predictions have been lowered to 2.6%. The EUR/USD may hit resistance if it stays above 1.1555, but if it drops below this level, it could target 1.1500. Considering the Euro’s ongoing weakness, any rise in the coming days could be a good opportunity to sell for traders. The pressure from the controversial trade deal is not likely to let up soon, creating a fundamental challenge. The bounce from recent lows looks more like a correction than a reversal of the downtrend. The strength of the dollar plays a crucial role, and we are looking at data this week to confirm its momentum. With the Federal Reserve’s policy announcement coming tomorrow, July 30th, the market expects a “hawkish hold,” supporting the idea that rates will remain high for a longer time. The latest JOLTs data shows a robust 8.7 million job openings, suggesting the labor market can handle current policies.

European Economic Outlook

In contrast, the European economy is weak, which limits any chance for the Euro to rise. The ECB’s survey data has lowered year-end inflation expectations to 2.6%, giving policymakers plenty of reason to be cautious. This difference in monetary policies between a strong Fed and a hesitant ECB is a key reason for our negative outlook on the Euro/USD pair. For derivatives traders, this situation creates an opportunity for volatility ahead of the central bank announcement and Friday’s Nonfarm Payrolls report. We expect implied volatility on one-week EUR/USD options to increase from 8% to 10%, making strategies like straddles or strangles appealing. The market seems to be underestimating the likelihood of sharp movements following these important events. We are preparing for the EUR/USD to break the important 1.1555 support level. Buying put options that expire in early August, targeting strikes at or below 1.1500, offers a low-risk way to profit from a potential decline. This strategy aims to take advantage of expected drops after key news events. This situation resembles the policy divergence seen in 2022, which caused the currency pair to fall significantly over several months. While we must be cautious about any unexpectedly dovish comments from American monetary authorities, the most likely path seems to be downward. Current fundamental and political pressures are against the single currency for now. Create your live VT Markets account and start trading now.

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