The Euro is rising, now above 1.1650, thanks to hopes for a trade deal between the US and China and expectations of a Federal Reserve rate cut. US President Donald Trump’s positive comments about his upcoming meeting with Chinese President Xi Jinping have put pressure on the US Dollar. Trump is set to meet Xi on Thursday, right after a deal with Japan about rare earth supplies. US inflation data suggests a 25 basis point Fed rate cut is likely, even though the government shutdown has complicated data collection. The Euro has gained slightly against other currencies, but the US Dollar’s recovery depends on the Fed hinting at a possible cut in December.

Eurozone Data Analysis

Eurozone economic data is weak, especially as Germany’s GFK Consumer Confidence Index has dropped more than expected. The US-Japan deal to lessen reliance on Chinese minerals is also shaping market feelings, giving the Euro a slight edge due to a more optimistic risk atmosphere. From a technical perspective, EUR/USD must break through resistance levels at 1.1670 and 1.1730 to confirm a rising trend. Ongoing US-China trade tensions, worsened by Trump’s return to the White House, continue to impact the global economy. These trade barriers have led to price hikes for affected goods. With EUR/USD hovering near resistance at 1.1670, all eyes are on tomorrow’s Federal Reserve decision. The market anticipates a rate cut, which is currently putting pressure on the dollar. This situation resembles a classic “buy the rumor” scenario, creating significant risks if the Fed’s message isn’t as dovish as many hope. In the next few days, using options strategies will be smart to handle the Fed’s upcoming announcement’s volatility. Since the event has a binary outcome, buying a short-dated straddle on EUR/USD could be beneficial, allowing profit from significant price swings in either direction. Implied volatility is high, showing the uncertainty, similar to what we saw during FOMC meetings in the turbulent 2022-2023 rate increase cycle.

Risk Management Strategies

Based on the data, a rate cut looks almost certain. As of this morning, the CME FedWatch Tool shows a 92% chance of a 25-basis-point reduction, which explains the dollar’s weakness. Any surprise, especially if the Fed doesn’t signal a third cut in December, could cause a quick shift, pushing EUR/USD back toward the 1.1575 support level. Beyond the Fed, the renewed US-China trade saga under Trump drives market risk. This situation heavily depends on the news, making long-term bets with futures risky. We should focus on longer-dated options, like December or January contracts, to prepare for ongoing volatility as these trade discussions progress. We recall how tumultuous the 2018-2019 trade war was, when sudden changes in tone caused big currency and stock movements. Then, the markets reacted immediately to presidential statements, a trend that seems to be re-emerging. Watching the VIX index, which is currently low at 15.6, will be crucial; if it spikes above 20, it could signal a return to risk-averse sentiment. Thus, a cautious strategy with defined risks is recommended. For those expecting the Euro to keep rising, a bullish call spread can secure profits while limiting losses if the Fed underwhelms. On the other hand, if we think poor German consumer confidence will soon drag the Euro down, a bearish put spread could position us for a decline without risking endless potential losses. Create your live VT Markets account and start trading now.

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