The EUR/USD rate is currently above 1.1700, reaching a two-week high of 1.1730 just before the US session begins. This rise is supported by moderate US Consumer Price Index (CPI) figures and expectations of a Federal Reserve rate cut in September. In July, consumer inflation stayed stable, showing little impact from tariffs while the job market softens, which may lead to the Fed easing its monetary policy. Concerns exist regarding President Trump’s choices for central bank officials and how they might influence monetary policy, putting additional pressure on the US Dollar.

Euro Performance Against Major Currencies

With reduced expectations for rate cuts, market risk appetite has improved, likely affecting currency movements. Anticipated comments from Fed officials should provide more insight. The Euro has gained strength against several currencies, with significant gains against the US Dollar. Data shows the Euro’s performance against other major currencies. The recent US CPI data indicates that tariffs aren’t heavily impacting the economy, offering the Fed some flexibility in policy adjustments. Despite steady inflation figures, the market is leaning towards a Fed rate cut. Fed officials currently differ on inflation and rate policies, with the probability of a September rate cut climbing to 95%. German price indices show minimal effects on the Euro. The upward trend for EUR/USD continues, but resistance levels may influence its direction. With a 95% chance of a Federal Reserve rate cut in September, the outlook for the US Dollar appears bearish. This weakness is primarily driving the strength of EUR/USD, creating a clear trend to follow. It’s important to position ourselves for this anticipated policy shift in the coming weeks. Given this situation, buying September EUR/USD call options seems like a solid strategy. Targeting strike prices around 1.1800 or 1.1850 enables us to profit if the upward trend continues through the September 17th FOMC meeting. This strategy lets us participate in potential gains while limiting risks to the premium paid.

Strategies for Trading EUR/USD with Fed Movements in Mind

This trade is backed by recent economic data that reflects familiar patterns. The July Non-Farm Payrolls report disappointed at 160,000, reinforcing the idea of a “softening labor market.” This reminds us of mid-2019 when the Fed began easing despite inflation not being critically low, which helped boost risk assets and currencies like the Euro against the Dollar. For traders seeking to lower the upfront cost of options, a bull call spread can be a smart choice. Buying a 1.1750 strike call while simultaneously selling a 1.1900 strike call, both with September expirations, caps potential profits but significantly reduces initial spending, making it an efficient way to express a moderately bullish outlook. However, we must stay alert to risks posed by divided Fed officials and technical resistance levels. To hedge against a surprise hawkish stance, we could allocate some capital to buy out-of-the-money puts with a strike around 1.1600. This acts as a safety net if market sentiment changes unexpectedly before the Fed meeting. Currently, implied volatility on EUR/USD options is high ahead of the Fed’s expected decision. This creates opportunities for traders who think the rate cut is already priced in. Selling a short-dated straddle or strangle right before the announcement might be profitable if the pair’s movement after the decision is less volatile than anticipated. Create your live VT Markets account and start trading now.

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