The EUR/USD pair is seeing small gains as the US Dollar weakens due to trade uncertainties. A positive lending survey from the European Central Bank (ECB) supports the Euro, pushing it above the 1.1700 level, higher than Friday’s high of 1.1675. The ECB survey shows that trade tensions aren’t affecting credit standards and there’s growing demand for mortgages and corporate loans. While the Euro is close to 10-day highs, its rise is limited by weak risk appetite due to upcoming tariff deadlines and stalled negotiations. EU officials are talking about anti-coercion measures as negotiations with the US face obstacles. A speech from Federal Reserve Chairman Jerome Powell may impact the market, especially with the Fed nearing its blackout period before a decision on interest rates. The recent decline of the US Dollar indicates concerns over tariffs. Meanwhile, ECB findings reveal that Eurozone businesses remain optimistic despite trade threats. Investors are keeping an eye on technology earnings in the US and SAP results in Europe for clues on currency effects. The EUR/USD pair has moved through a downtrend channel, targeting 1.1720 resistance and possibly higher levels. Support is at 1.1675, and if it drops below 1.1655, it could hinder the bullish outlook. With the US Dollar sliding, the Dollar Index (DXY) nearing 105 creates an opportunity for the Euro’s strength. The break above the downtrend channel is a key indicator for us, suggesting a chance for a gradual upward movement. Positive findings from the ECB’s survey are reinforced by recent data. For example, Eurozone inflation is around 2.4%, indicating the ECB may not cut rates as aggressively as expected. This economic strength supports the idea of buying call options to take advantage of potential Euro appreciation against the Dollar. While there’s a bearish trend for the Dollar, comments from Mr. Powell and other Fed officials signal a “higher for longer” interest rate policy, which could limit significant currency shifts. The CME FedWatch tool shows a low chance of a rate cut in the next few months, putting a cap on this pair. This uncertainty means that simply buying calls may be too risky. Thus, we are considering bull call spreads as a better approach. By buying a call option close to the current level, like 1.1700, and selling a call with a higher strike, such as 1.1750, we can profit from a slight rise. This strategy lowers our initial cost and sets a clear maximum profit, which fits the current environment of slow upward movement. We must also be ready for a reversal if the price falls below key support levels. Historically, during intense trade negotiations like those in 2018-2019, market sentiment can shift quickly, erasing gains. To protect against this, we plan to buy protective put options with a strike price under 1.1655 to safeguard our portfolio from a sudden downturn. Lastly, we are observing implied volatility in EUR/USD options. If concerns over tariffs or differences between central banks cause volatility to rise above recent averages, the value of premiums from selling options increases. This makes our bull call spread strategy even more appealing, as the income from the short call can offset the cost of the long call.

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