The EUR/USD pair has gained slightly after a significant sell-off earlier this week. This decline was mainly due to a tough stance from the Federal Reserve and lower inflation worries in Germany. Right now, the Euro is at 1.1450, with potential resistance around 1.1460. The strength of the US economy is shown by a robust second-quarter growth, while the Federal Reserve remains careful about cutting interest rates. Recent US GDP figures show a 3% growth rate in the second quarter, which is better than expected and a reversal from the previous quarter’s decline. A new trade deal with South Korea also helps the US Dollar, along with reduced trade worries with Japan and the EU. In Germany, the preliminary CPI showed a lowered inflation rate of 1.8%, down from 2% in June. The Euro has been only slightly affected by this, even though Germany’s unemployment rate remains low at 6.2%. The Euro is trying to bounce back to 1.1450, but resistance might appear at the 1.1500 mark. Investors are focusing on the US PCE Price Index, which measures inflation, for clues about the Federal Reserve’s future actions, especially with the Nonfarm Payrolls data approaching. There’s an increasing divide between the US and European economies. The US has just recorded a strong 3% GDP growth, while German inflation has dropped to 1.8%. This difference suggests that the US Dollar will continue to be strong against the Euro. We think the Federal Reserve will be careful about cutting interest rates, especially after the sharp increases in 2023 and 2024. On the other hand, the European Central Bank might be more likely to ease its policies since inflation is below target. This growing policy gap could push the EUR/USD pair lower. Given this situation, we are considering strategies that benefit from a declining or stagnant EUR/USD. Buying put options could be a direct way to bet on the pair dropping towards the earlier 1.1300 levels. Alternatively, selling call spreads above the 1.1500 resistance level might allow us to collect premiums, anticipating that the pair won’t go higher. We are closely watching the upcoming US Personal Consumption Expenditures (PCE) data and the Nonfarm Payrolls report. We expect implied volatility to rise before these releases, making options more expensive. This environment could favor strategies that sell premiums for those who believe the 1.1500 resistance will hold strong.

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