The Euro (EUR) increased by 0.2% against the US Dollar (USD) during Thursday’s North American session. It went beyond the 1.16 mark, hitting new highs for November and moving towards the middle of its range since late June. The market’s positive outlook follows the end of the US government shutdown, which led to a weakening of the USD. Despite some disappointing industrial production data and weak employment figures from France, the EUR remained strong, buoyed by favorable interest rate differences.

Technical Indicators Analysis

Technical indicators reveal that the Relative Strength Index (RSI) has gone above 50 for the first time in over a month. There is no major resistance until the 1.1750 level, and the EUR is expected to trade between 1.1580 and 1.1680 in the near future. With the Euro breaking past the 1.16 level, a significant multi-year high, we are now focused on taking advantage of this upward trend. This move appears to be mainly driven by a “risk-on” sentiment in the markets after the US government shutdown resolution, leading to broader dollar weakness. This situation provides a chance for traders, as the market seems to overlook poorer fundamentals from the Eurozone. Recent economic data, like the 0.5% decline in Eurozone industrial production in October, has been disregarded, as has the slight increase in French unemployment last week. This indicates that, for now, the Euro is likely to continue rising due to a growing risk appetite.

Narrowing Interest Rate Differential

The reducing interest rate gap between the US and Europe supports the Euro in the medium term. The Federal Reserve has kept rates stable at 4.75%, while the European Central Bank maintains a strong stance at 3.50%. This shrinking premium for holding dollars is evident in the spread between US 10-year Treasury and German Bund yields, which has tightened by 20 basis points since last month. For traders, buying EUR/USD call options with strikes near the 1.1750 resistance level looks appealing. This approach allows for profits from ongoing Euro strength while managing risk if the rally stalls. Implied volatility has dropped since the peaks observed during the October shutdown debates, making options more affordable now. Historically, resolutions in US politics, like the debt ceiling agreements in 2023, have led to sharp but temporary declines in the dollar. The current situation feels similar, suggesting that this Euro strength might continue for several weeks. Thus, taking a bullish position now seems wise before the market shifts back to focus on economic weaknesses. In the short term, the 1.1580 to 1.1680 range can be used for trade strategies. Selling puts with a strike price near 1.1580 could be a useful method to collect premiums, betting that any price drops will be minor. This aligns with the RSI moving above 50, indicating that bullish momentum is building for the first time in over a month. Create your live VT Markets account and start trading now.

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