Stabilizing Markets
In the US, President Trump has signed a bill to end a government shutdown, which has helped stabilize the markets. Traders are now looking forward to the upcoming ADP Employment Change report. Recently, employment figures have been low, with expectations for an increase to 48K from 41K.
The US ISM Services PMI is expected to decrease to 53.5 in January, down from 54.4 in December. This report will play a significant role in how traders view the US Dollar.
For EUR/USD, the pair needs to rise above 1.1875 to confirm a change in trend. There is support at the recent lows of 1.1775 recorded on February 2 and 3. The ADP Employment Change and ISM Services PMI reports are key to understanding current economic performance.
The Eurozone is facing challenges as its economy slows. Eurozone inflation has dropped to a 16-month low of 1.7%, a stark contrast to the European Central Bank’s struggle with rates above 2% for much of 2025. Additionally, the downgrade of services activity PMIs indicates economic fatigue, which could lead the ECB to adopt a more cautious approach.
Opportunities for Derivative Traders
Meanwhile, the US Dollar remains strong as we await important data. The market has low expectations for the ADP employment report at 48K, which could lead to a surprising upside and be positive for the dollar. This is occurring as the Federal Reserve prepares for new leadership, with Kevin Warsh likely to favor less aggressive rate cuts. This creates a policy gap compared to a weakening Eurozone.
For derivative traders, this situation suggests a bearish outlook on the EUR/USD pair in the coming weeks. Buying put options with strike prices below the current support level, like 1.1750 or 1.1700, could be a smart move. Choosing expirations for late February or March 2026 would allow time for a downward trend to develop after key US employment figures are released.
We can expect to see a spike in implied volatility around today’s ADP and ISM Services data, which will push up option prices. A good strategy would be to wait for a slight rise in EUR/USD, possibly back toward 1.1850, before entering put positions, ensuring a better entry price. This careful approach can help manage the higher costs associated with predictable economic events.
The main risk to this plan is if the upcoming US economic data disappoints. If the ADP report significantly underperforms the 41K seen in December 2025, or if the ISM Services PMI shows a sharp drop, the dollar could weaken. Additionally, if the price breaks above the 1.1875 resistance level, it would indicate that our bearish view could be wrong, necessitating a quick reassessment of any short positions.
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