On Friday, EUR/USD rose to 1.1697, gaining 0.27%. This increase followed a report from the US Bureau of Economic Analysis, which stated that the core Personal Consumption Expenditures (PCE) Price Index met forecasts but stayed below 3%. After this report, the likelihood of the Federal Reserve cutting borrowing costs increased to 88%. Federal Reserve officials have expressed concerns about the job market and inflation trends.

Upcoming Economic Indicators

In Europe, there was little economic news, with focus shifting to geopolitical issues, especially regarding Russia. In the coming weeks, the US will release several economic indicators, including the ISM Manufacturing PMI and Nonfarm Payrolls. Europe will be looking at Business Climate and September inflation numbers. In August, the US PCE Price Index rose by 2.9% year-on-year, in line with expectations. However, the University of Michigan’s Consumer Sentiment for September was lower than expected, indicating a weaker outlook. Trade announcements included new tariffs on various goods imposed by President Donald Trump. The ECB’s Consumer Expectations Survey highlighted inflation expectations with some adjustments over different time periods. EUR/USD had difficulty staying above 1.1700, having previously dropped to 1.1650. The Relative Strength Index (RSI) shows that further declines are possible if key supports are broken, while resistance is at 1.1700.

Derivatives Traders Strategy

The EUR/USD pair is moving up towards the 1.1700 mark as traders grow more confident that the Federal Reserve will lower interest rates. The latest core PCE report, which showed a 2.9% increase, is boosting speculation that the Fed might soon take action to support a weak economy. Market expectations for a rate cut are currently very high at 88%. This confidence is supported by recent broader economic trends. Recent data indicates a slowdown in the US labor market, with only 165,000 jobs added in August, falling short of expectations and marking the fourth month of declining job growth. This trend lends credibility to the dovish comments from Fed officials and suggests a downward shift for the dollar. For derivatives traders, this signals a move towards positioning for a weaker dollar in the upcoming weeks. We should consider buying EUR/USD call options expiring in October or November to take advantage of a potential rise above the 1.1750 mark. A surprisingly weak US jobs report next week could trigger such a movement. However, we also need to be aware of risks from Europe. Rising geopolitical tensions concerning Russia, particularly regarding the reported Estonia incursion, could limit the Euro’s strength. Notably, the Euro fell below parity with the dollar in 2022 amid the initial Ukraine conflict, highlighting the currency’s sensitivity to regional instability. This situation poses a challenge for the European Central Bank. Recent Eurozone inflation data has proven stubborn. The latest flash Harmonized Index of Consumer Prices (HICP) for September was 3.1%, surprising markets that anticipated a drop below 3%. Typically, a hawkish ECB and a dovish Fed would benefit a stronger Euro, but geopolitical risks present a significant counterbalance. Additionally, the introduction of new US tariffs on various goods adds another major element to watch. We remember how similar trade disputes in 2018-2019 led to sharp and unpredictable currency market swings. This development greatly increases the likelihood of market volatility. Given these mixed signals, simply betting on one direction can be risky. A better approach would be to trade on the expected rise in volatility itself. We should consider using options strategies like straddles or strangles, which profit from significant price movements in either direction without needing to predict the direction. Create your live VT Markets account and start trading now.

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