The EUR/USD exchange rate could rise to 1.20 by the end of the year if the Federal Reserve takes a dovish stance. However, the recent Fed meeting makes this target harder to reach. On the bright side, EUR/USD found some support below 1.1600 last night. The eurozone’s GDP data for the third quarter is expected soon. Previous surveys have been positive, but actual results disappointed over the summer. French GDP grew by 0.5% quarter-on-quarter, beating the 0.2% estimate. A significant surprise in eurozone GDP, which is predicted at just 0.1%, is needed to boost EUR/USD.

European Central Bank Meeting

Today is also the European Central Bank’s meeting. However, President Christine Lagarde probably won’t change what the markets expect. Right now, there’s a slight chance of a rate cut in the next nine months. The short-term range for EUR/USD could peak at 1.1640/50, but there’s a risk it might dip to 1.1550 after the Fed’s latest statements. Possible downside risks could come from the flash October CPI reports from Germany, Spain, and Belgium. This makes the outlook for EUR/USD uncertain in the near term. With the Federal Reserve adopting a less dovish approach last night, our expectation for EUR/USD to hit 1.20 by year-end is under pressure. The difference in interest rates between the US and Europe plays a big role, with the Fed funds rate at 5.25% while the ECB’s deposit rate stands at 3.75%. This gap makes dollars more appealing, likely limiting significant upward moves for the euro soon. Since EUR/USD is getting support below 1.1600, traders might want to explore strategies that earn money in a sideways or slightly bearish market. We see the 1.1640/50 range as a solid ceiling, so selling call options or setting up bear call spreads at that level could be a good idea. With a downside target at 1.1550 becoming more likely, buying puts also looks like a smart move.

Short Term Volatility

Today’s European Central Bank meeting is unlikely to change the current situation, as we don’t expect major policy changes from President Lagarde. However, her remarks could add short-term volatility, which traders can leverage by using options strategies like iron condors to profit if EUR/USD stays within the expected 1.1550-1.1650 range. Similar past periods of policy divergence, like in 2023, show that the dollar often maintains its strength for a long time. Recent economic data from the eurozone points to a cautious outlook for the euro. This morning’s flash report confirmed that Eurozone GDP grew by only 0.1% in Q3, indicating weak economic strength compared to the US. Additionally, Germany’s preliminary October inflation data stood at 2.9%, which, though lower, remains high enough to create stagflation concerns for the ECB. In the coming weeks, it appears that EUR/USD will trend sideways or lower. The main takeaway is that the Fed is not giving the dovish signals needed for a lasting euro rally, suggesting that selling during strength will continue to be the preferred strategy for this pair. Create your live VT Markets account and start trading now.

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