EUR/USD’s rise paused after it failed to move above 1.18 in three straight sessions. The European Central Bank has pushed back against expectations of a rate rise at the 29 April governing council meeting.
Eurozone growth forecasts have been reduced, but remain above the European Central Bank staff baseline. The IMF cut its 2026 Eurozone growth forecast to 1.1% from 1.3%.
Euro And Sterling Recovery Versus Dollar
The euro and sterling have been described as still in recovery against the US dollar. The Federal Reserve has not pushed back against rate rises and has defended its choice not to give strong guidance, citing increased geopolitical uncertainty.
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The rally in EUR/USD has clearly stalled, as we’ve seen it fail to break the 1.1800 resistance level for three straight sessions this past week. For derivative traders, this makes selling out-of-the-money call options with a strike price above 1.18 an interesting short-term strategy to collect premium. This level also aligns with significant long-term technical resistance, making a breakout less likely without a major catalyst.
A key reason for this stall is the European Central Bank, which is actively discouraging expectations of a rate hike at its upcoming April 29 meeting. Current overnight index swaps are pricing in less than a 15% probability of a rate hike this month, reinforcing the bank’s dovish stance. This lack of a yield incentive makes it difficult for the Euro to gain significant ground in the near term.
Policy Divergence And Options Volatility
In sharp contrast, the Federal Reserve is not pushing back against market pricing for rate hikes, creating a clear policy divergence. Fed funds futures currently imply a greater than 70% probability of a 25-basis-point hike at the next Fed meeting in May. This growing interest rate differential between the US and the Eurozone should continue to put a cap on EUR/USD rallies.
Given the upcoming ECB meeting, we are seeing a rise in short-term implied volatility in the FX options market. The Cboe EuroCurrency Volatility Index (EVZ) has ticked up to 8.5, suggesting traders are preparing for a potential price swing around the announcement. This presents an opportunity for strategies like long straddles, which profit from a large price move in either direction, regardless of the outcome.
We saw a similar pattern in late 2025 before the December policy meeting, where volatility rose into the event and then collapsed afterward. Traders could plan to sell volatility through strategies like short strangles immediately following the April 29 announcement, should the ECB deliver on its expected dovish message. This would take advantage of the predictable crush in option premium.
Despite the short-term headwinds, it may be premature to position for a major Euro decline. While the IMF trimmed its 2026 Eurozone growth forecast to 1.1%, recent Purchasing Managers’ Index (PMI) data has shown surprising resilience in the services sector. This underlying stability suggests that using defined-risk strategies, like buying put spreads rather than outright short positions, is a more prudent approach.
