The Euro is trying to find stability in the mid to upper 1.15 range after falling 1.3% against the US Dollar. Higher interest rates, especially the Germany-US 2Y spread, are helping support the Euro. However, a drop in risk reversals shows there is a growing need for protection against a rise in the Euro’s value. Bullish positions have made the Euro vulnerable. The latest CFTC report shows a long position of $18.4 billion. We are keeping an eye on the upcoming July preliminary CPI report and the ECB’s inflation forecasts, which expect 2.6% for the next year and 2.4% for the next three years. These will be important indicators. The Euro/USD is close to its 50-day moving average of 1.1570 and has maintained a bullish trend since February. The RSI is below 50, indicating bearish signs, but it is still near neutral. We expect the Euro to stay within a range of 1.1520 support and 1.1680 resistance. While we watch the Euro stabilize in the mid-upper 1.15 range, the latest German ZEW Economic Sentiment survey shows improved investor confidence at 51.3, the highest since early 2024. This suggests some underlying faith in the economy despite the currency’s recent drop. Given the expected range of 1.1520 support and 1.1680 resistance, selling options premium looks appealing for the coming weeks. An iron condor strategy, selling the 1.1700 call spread and the 1.1500 put spread set to expire in August, could take advantage of this consolidation. This strategy will profit if the EUR/USD stays within these strike prices before expiration. As we await the preliminary July CPI figures, we expect increased volatility. The European Central Bank’s inflation forecasts are already above their 2% target. Any unexpected CPI data could lead to a strong market reaction. Traders might consider buying a short-dated straddle to profit from significant price movement in either direction. We must also be cautious about the extensive bullish positions. Recent CFTC data indicates a net long of $18.4 billion. In the past, crowded trades like this can quickly unwind, as demonstrated by the Euro’s sharp drop in the third quarter of 2023. Therefore, buying out-of-the-money puts with a strike around 1.1450 could act as a cost-effective hedge or a bet on a potential long squeeze. On the other hand, the recent decline in risk reversals shows an increasing demand for call options compared to puts. This means that despite the crowded trades, some traders are hedging against a strong upward move. We might reflect this sentiment by implementing a bull call spread, buying the 1.1600 call and selling the 1.1750 call to capture potential gains while managing our risk.

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