The EUR/USD has climbed to around 1.1630 as the US Dollar fell back after a meeting between US President Trump and China’s Xi Jinping. This shift occurred even though no trade agreement was reached during their talks. The US Dollar Index, which measures the dollar against six major currencies, has dropped to about 99.00. The US Dollar is particularly weak against the New Zealand Dollar. The European Central Bank (ECB) is likely to keep interest rates steady for the fourth time in a row. With inflation pressures in the Eurozone stable near the 2% target, the Deposit Facility rate is expected to remain at 2%. The ECB will announce its monetary policy at 13:15 GMT, while Eurozone Q3 GDP and German HICP data will be released at 10:00 GMT and 13:00 GMT, respectively.

Federal Reserve Cuts Interest Rates

The Federal Reserve has lowered interest rates by 25 basis points to a range of 3.75%-4.00%, citing “risk management.” This change follows a reduction in tariffs on Chinese imports from 57% to 47%. Meanwhile, the Euro remains strong as the ECB continues its policy to maintain price stability in the Eurozone, making decisions eight times a year. The gap between the Federal Reserve and the European Central Bank is becoming clearer. We should expect continued US Dollar weakness against the Euro. With the Fed cutting rates to a 3.75%-4.00% range and the ECB expected to keep its rate at 2.00% today, the growing interest rate difference makes the Euro more appealing. The US Dollar Index has fallen to about 99.00, reflecting market responses to the Fed’s dovish stance and easing tensions in the China trade dispute. While lowering tariffs to 47% is a positive development for global trade, it reduces the appeal of the US Dollar as a safe haven. We saw a similar situation in late 2023 when the dollar weakened as the market began anticipating Fed rate cuts for 2024.

Euro Gains Support

With the ECB’s decision to hold rates steady, the Euro is gaining strength, a notable change from the last aggressive rate hikes that ended in 2024. Today’s Eurozone Q3 GDP and German inflation data are key events to watch. Strong results could reinforce the ECB’s current policy and drive the EUR/USD higher, especially since the IMF projects only modest 1.4% growth for the Euro area this year. For traders, this environment suggests buying call options on the EUR/USD pair to take advantage of potential gains. If European data is strong today, a move toward the 1.1700 level seems likely. Options can help us engage in this rally while controlling our risk. A more cautious approach would be to use a bull call spread. This involves buying a call option at a lower strike price and selling another at a higher strike price to reduce trading costs. This strategy suits a steady rise in the EUR/USD and matches our current expectations. However, we must stay alert to incoming data because any unexpected weakness in Eurozone GDP or German inflation could quickly reverse gains for the pair. For example, a softer inflation reading might raise expectations for an ECB rate cut, which would diminish the Euro’s yield advantage. It’s crucial to set clear profit targets and stop-loss levels for any position. Create your live VT Markets account and start trading now.

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