Technical Picture And Trend Context
On the daily chart, EUR/USD remained below the 50-day, 100-day, and 200-day Simple Moving Averages. The pair has stayed within a run of lower highs since the corrective move began from the 1.2000 area. Momentum was muted, with the 14-day Relative Strength Index near 43. This followed an earlier move below 30, without a strong acceleration in either direction. Resistance sat at 1.1600, with a broader zone near 1.1670-1.1730. If price breaks above that area, it may move towards 1.1900 and then 1.2000. Support was near 1.1400. A drop below it could lead to 1.1300-1.1200.Shift In The Macro Backdrop
Looking back at the analysis from last year, we can see the mildly bearish sentiment when EUR/USD was struggling below its key moving averages around the 1.15 level. The focus was on a potential break lower, with the Relative Strength Index suggesting lingering downside pressure. This perspective was common in 2025 as the market digested central bank policies from the previous year. The situation has since evolved, as that broad corrective phase from 1.2000 found a floor, and the pair decisively broke above the 1.1730 resistance zone late last year. We are now trading near 1.1850, a significant shift from the bearish structure observed previously. This move was largely driven by a divergence in central bank outlooks that was not yet priced in at the time. Recent data confirms this shift, with February’s Eurozone Harmonised Index of Consumer Prices coming in at a stubborn 3.1%, pressuring the European Central Bank. In contrast, the latest US Non-Farm Payrolls report showed job creation slowing to 155,000, missing forecasts and prompting markets to price in a more dovish Federal Reserve stance for the second half of the year. The US Dollar Index has reflected this weakness, now trading around 95.50. For the coming weeks, we should consider strategies that benefit from continued upside momentum or range-bound trading at these higher levels. Buying call options with a strike price at the psychological 1.2000 level could capture a potential breakout. This allows traders to capitalize on further Euro strength while defining their maximum risk to the premium paid. Alternatively, for those expecting the rally to consolidate, selling out-of-the-money put options with a strike near the 1.1700 support level presents a viable strategy. This approach allows us to collect premium, taking the view that the pair will not break significantly lower in the near term. The current implied volatility of around 8.5% makes these premium-selling strategies reasonably attractive. To manage risk, we must watch for any sharp reversal in economic data that could alter the narrative. A hedge could involve purchasing far out-of-the-money puts near the 1.1550 level, which would protect a portfolio from an unexpected return to last year’s bearish conditions. This provides a cost-effective insurance policy against a sudden resurgence in the US Dollar. Create your live VT Markets account and start trading now.
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