The Euro has fallen to new lows, trading below 1.1580 as we await the European Central Bank’s (ECB) decision on monetary policy. The ECB is likely to keep interest rates unchanged for the third time in a row. Meanwhile, the Eurozone’s GDP grew by 0.2% in the third quarter, which is better than the predicted 0.1%. Good news from US-China trade talks did not significantly boost market confidence, and the Euro’s earlier gains faded quickly. Recently, the US Federal Reserve lowered interest rates by 25 basis points, but it is unclear if more cuts are coming, which has strengthened the US dollar. In October, the European Economic Sentiment rose to 96.8, surpassing expectations, while consumer confidence remained stable.

Technical Analysis Drives Market Sentiment

Looking at the technical analysis, EUR/USD has faced resistance around 1.1630. A break below a triangle pattern at 1.1580 confirms a bearish trend. Support is noted at 1.1545, with potential targets at 1.1500 and 1.1450. The ECB’s deposit facility rate stands at 2%, and the upcoming press conference could influence the Euro’s short-term movement. With the ECB meeting today, we are experiencing increased short-term volatility in the EUR/USD. Traders should brace for a significant price change after the press conference. Strategies like straddles, which benefit from large price movements in either direction, may be effective to use before the announcement. The Federal Reserve’s recent strong stance is boosting the US dollar. By indicating a pause in rate cuts, the Fed establishes a clear policy difference with a more cautious ECB. This makes bearish strategies on the Euro, such as buying put options on the EUR/USD, appealing in the weeks ahead. Recent data highlights this divergence. The Eurozone’s flash CPI for October showed 1.9%, just below the ECB’s 2% target. In contrast, the recent US Core PCE inflation data for September remained steady at 3.8%, explaining the Fed’s hesitance to ease further. This gap in statistics suggests the Euro is fundamentally weaker compared to the dollar.

Historical Patterns Point to Sustained Weakness

We have seen similar policy differences in the past, particularly from 2014 to 2015, when the EUR/USD dropped significantly. This historical pattern indicates that we may face a prolonged downtrend rather than a brief dip. It supports maintaining bearish positions for more than just a few days. The recent breakdown below the 1.1580 level serves as a strong bearish signal, opening opportunities to reach the 1.1545 support level and potentially the 1.1500 psychological barrier. We should consider this an opportunity to buy put options with strike prices near these targets. The technical confirmation offers a solid entry point for anticipating further declines. Given the elevated implied volatility leading up to the ECB meeting, directly buying options is costly. A bear put spread could be a more efficient way to position for a drop. For example, purchasing a 1.1550 put and simultaneously selling a 1.1450 put would lower costs and limit risk. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now