The EUR/USD pair is trading slightly above its monthly low of 1.1540. The next support level is at 1.1500. The European Central Bank (ECB) has held the policy rate steady at 2.00% for the third consecutive meeting, indicating that further easing is not expected. The ECB noted that economic growth is continuing, even amidst global challenges. President Christine Lagarde has reaffirmed the current monetary policy. Current market swaps indicate a 50% likelihood of a 25 basis points cut in the coming year. However, stable Eurozone inflation and improving PMI data suggest that a pause is more likely.

Eurozone Inflation Insights

Eurozone inflation is close to the ECB’s target, with the preliminary October Consumer Price Index (CPI) at 2.1% year-on-year, matching forecasts. The core CPI remained steady at 2.4% year-on-year for the second month in a row, while the services CPI rose to 3.4% year-on-year, its highest in six months. The FXStreet Insights Team gathers input from various analysts, providing valuable observations. Their analyses include insights from both external and internal experts. The European Central Bank appears committed to maintaining its 2.00% policy rate, creating a strong base for the EUR/USD exchange rate. With President Lagarde indicating that rate cuts are unlikely, the support level around 1.1500 seems solid. This stability suggests that betting on a sudden drop in the Euro may be risky in the coming weeks. On the other side of the pair, US Core CPI for October was reported at 3.5%, slightly above expectations, reinforcing the Federal Reserve’s cautious stance. This adds pressure on the Euro’s potential rise against the dollar. The contrasting signals from a steady ECB and a firm Fed are likely to keep EUR/USD within a narrow range.

Impact on Derivative Trading

For derivative traders, the current environment of low expected movement is important, as one-month implied volatility for EUR/USD has dropped to around 5.5%, a multi-year low. This low volatility makes strategies like selling straddles or iron condors particularly appealing, as they benefit from price stability, which aligns with current central bank expectations. The ECB’s confidence stems from the ongoing recovery in economic activity. Recent Eurozone manufacturing PMIs remain above the 51.0 growth threshold, a significant improvement from the sub-50 contraction readings seen in late 2023. As long as this steady economic recovery continues, the market’s expectation of a 50% chance for a rate cut in the next year seems too high. Create your live VT Markets account and start trading now.

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