EUR/USD has seen some losses but remains above 1.1850, having reached a four-month high recently. The latest German IFO data shows business sentiment unchanged, while fears of intervention in the US-Japan markets are putting pressure on the USD. These concerns have reduced demand for the USD, helping keep EUR/USD at higher levels since last September. Recent interest rate evaluations for the Dollar-Yen suggest potential intervention in the market, leading to a drop in USD positions. The Greenback’s decline has affected EUR/USD, which is now at levels not seen since September. However, the Euro is facing resistance below 1.1875 due to a risk-off climate, exacerbated by erratic trade policies, including Trump’s threat of new tariffs on Canada.

Economic Schedule and Expectations

The economic calendar is light, with focus on the European Central Bank’s speech and the US Durable Goods Orders report. Analysts expect a 0.5% recovery following a previous drop of 2.2%. Though technical indicators show bullish trends for EUR/USD, caution is necessary as the pair approaches resistance, with possible support seen around the 1.1800 level. In other news, German IFO sentiment remained unchanged, slightly missing improvement predictions. The US Durable Goods Orders, which are sensitive to large investments, will be released on January 26, with expectations of a 0.5% increase. Due to the ongoing weakness of the US Dollar, we see chances to keep or buy long EUR/USD positions. The main factor driving this is the market’s fear of a coordinated US-Japan intervention to support the Yen, prompting traders to exit long dollar positions. Currently, trading around 1.1860 signals strong upward momentum for the pair, marking a four-month high. The major upcoming event is the Federal Reserve’s policy decision this Wednesday. Market expectations, reflected in Fed funds futures, suggest over a 90% chance that the Fed will keep interest rates steady this month. We will closely analyze the policy statement and press conference for clues about the first potential rate cut in March or the second quarter.

Traders Risk and Strategy

Traders should exercise caution today, as the forthcoming US Durable Goods Orders report may boost the dollar if it exceeds expectations. A strong reading, combined with the overbought RSI signal, could lead to a temporary pullback in EUR/USD, making it risky to aggressively add to long positions before this data is released. For those who already hold long EUR/USD positions, buying put options with a strike price around 1.1800 could be a wise strategy. This acts as a hedge, safeguarding profits from a possible downturn due to a hawkish Fed or strong US data, while still allowing for potential gains. The cost of the option is a small price to pay for securing profits at these multi-month highs. Given the uncertainty surrounding both the Fed and any potential intervention, increased volatility is likely in the coming weeks. A long straddle, which involves purchasing both a call and a put option at the same strike price and expiration, could be a smart way to capitalize on a large price move in either direction following the Fed’s decision. This approach is suitable for a market where the direction is unclear but significant movements are anticipated. We recall the swift market changes caused by the Bank of Japan’s intervention in late 2022, highlighting how quickly currency trends can reverse due to official actions. This history makes holding outright short positions on the Yen—and, by extension, long USD positions—particularly risky at this time. Using options helps us define our risk in a market where sudden, high-impact events are a real possibility. Create your live VT Markets account and start trading now.

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