The Euro remains steady against the US Dollar as traders wait for updates from the Federal Reserve (Fed) and the European Central Bank (ECB). The Fed is expected to cut rates by 25 basis points, while the ECB is likely to keep rates unchanged. Current technical indicators show that the Euro is struggling, staying below several moving averages. Right now, EUR/USD is trading at about 1.1639 during US hours, and the US Dollar Index is around 98.88. Traders are being cautious as they look for signals from both central banks. The Fed’s upcoming meeting is widely believed to announce a rate cut, especially after US inflation data fell below expectations. According to the CME FedWatch Tool, there is a 96.7% chance of a rate cut due to low inflation and signs from the labor market.

European Central Bank Stance

On the other hand, the ECB is projected to leave its rate at 2.00%, as it evaluates business conditions and inflation in the Eurozone. The current inflation in the Eurozone is in line with the ECB’s target of 2%, indicating stability. Technically, EUR/USD shows a downward trend, remaining under moving averages between 1.1650 and 1.1690. Support levels are seen near 1.1600 and 1.1550, with an RSI of 47, which suggests little upward momentum. With the market mostly pricing in a Fed rate cut, we may not see a strong immediate reaction. The main opportunity for traders will stem from the Fed’s hints about future policy directions. We are eager to hear if this anticipated 25-basis-point cut is the final one for some time. Given the current uncertainty, trading volatility could be a good strategy. Using a straddle, which involves buying both a call and a put option, can help profit from a significant price movement, regardless of the direction. Recently, the Cboe’s EuroCurrency Volatility Index (EVZ) reached 8.5, its highest in three months, indicating that the market is preparing for major changes.

Potential Market Reactions

The Fed might deliver what is known as a “hawkish cut,” where they lower rates but indicate that no further cuts are imminent. This could be prompted by ongoing wage inflation, which recent data shows is at 4.1% year-over-year. Such a scenario could unexpectedly strengthen the US Dollar, pushing EUR/USD below the 1.1600 support level. Similar reactions occurred in summer 2023, when the market focused more on the Fed’s statements rather than the anticipated rate increase. Meanwhile, the European Central Bank is expected to keep rates steady at 2.00%, reinforcing support for the Euro. This fits the technical outlook, where there is strong resistance up to 1.1690. Traders who believe the pair will stay within this range could consider selling out-of-the-money call options above this resistance level to earn premiums. Create your live VT Markets account and start trading now.

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