EUR/USD is trading modestly higher at around 1.1735 after bouncing back from 1.1685. Even though the Eurozone Services PMI for September was revised down to 51.3, the Euro remains strong due to a growing risk appetite affecting the US Dollar. European services data is mixed: Italy and Spain show growth, Germany is slightly weak, and France is experiencing a contraction. In the US, economic data presents a mixed picture. There’s a drop in job cuts alongside reduced hiring plans, which are at their lowest since 2009. With the US Nonfarm Payrolls data unavailable due to a government shutdown, attention shifts to services PMI releases and comments from central bankers. The S&P Global Services PMI is expected to drop from 54.5 to 53.9.

Technical Analysis

In technical analysis, EUR/USD is trading sideways below 1.1760. Resistance is near the previous highs at 1.1760, while support is found at recent lows of 1.1685 and further down at 1.1645-1.1655. The upcoming US services PMI data may affect the pair, with expectations for a slight slowdown in activity. The ISM Services PMI is predicted to fall from 52 to 51.7, with a focus on indices related to orders and employment. With EUR/USD trading in a tight range between 1.1700 and 1.1760, there’s an opportunity in the lack of direction. The US government shutdown has delayed important job data, adding uncertainty and reducing volatility for the time being. This situation is suitable for selling options to gather premiums, like a short strangle, as long as the pair stays range-bound. The immediate focus will be on today’s US ISM Services PMI release. If the number exceeds the 51.7 consensus, it could support a hawkish view from the Fed and push the pair towards the 1.1685 support level. On the other hand, a weak reading may raise concerns about a slowing economy and test the 1.1760 resistance.

Market Volatility and Strategy

Looking back, the economic strength in the Eurozone, reflected in a services PMI of 51.3, aligns with the steady growth throughout much of 2024. However, the unexpected rise in Eurozone unemployment to 6.3% last month indicates potential underlying problems. This mixed data isn’t strong enough to cause a breakout by itself, reinforcing the current range-bound scenario. The main issue in the market is the Fed’s position versus the faltering US labor market, as evidenced by hiring plans hitting their lowest since the 2009 financial crisis. There’s a disconnect where Fed officials maintain a tough stance on rates, but data suggests they might need to ease policy sooner than anticipated. The CME FedWatch tool estimates a 35% chance of a rate cut by December, a figure that could change dramatically based on today’s services data. Expect a significant change in volatility in the coming weeks. A similar situation occurred during the US government shutdown from 2018 to 2019 when markets traded sideways before surging once a resolution was reached and delayed reports were released. This historical context indicates that today’s low-volatility environment could be temporary and a sharp move may be on the horizon. As such, while selling premium is the strategy for today, we should also be ready to adapt. If the shutdown continues, actions like buying volatility through long straddles or strangles should be considered. The longer Nonfarm Payrolls data is postponed, the more pronounced the market’s eventual reaction will be, making long volatility strategies increasingly appealing. Create your live VT Markets account and start trading now.

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