The Euro has weakened by 0.7% against the US Dollar, performing worse than all G10 currencies except the New Zealand Dollar. This decline follows a new US-EU trade agreement establishing a 15% tariff on most US imports from the EU. This trade deal impacts the European Central Bank (ECB), which recently moved to a neutral stance, stepping back from a dovish outlook due to trade uncertainties. Technical indicators suggest a medium-term bullish trend, with EUR/USD currently trading above the 50-day moving average at 1.1566. Support is near 1.1620, while resistance is at 1.1720.

Technical Analysis Of EUR/USD

After the trade agreement, EUR/USD is moving down towards 1.1650. Meanwhile, GBP/USD is also dropping towards 1.3400, driven by a stronger US Dollar. Gold prices remain below $3,350 as rising US Treasury yields and improving risk sentiment discourage buyers. Next week looks busy, with a trade deadline on August 1, the Federal Reserve likely maintaining interest rates, and expected strength in Nonfarm Payrolls. Although the economy shows strength, there are worries that the Fed may have waited too long to cut rates, especially with labor market concerns. Given the new 15% tariff and resulting pressure, traders should expect the Euro to weaken further against the US Dollar. Buying EUR/USD put options with strike prices below the 1.1620 support level is a smart way to bet on a continued decline. This approach takes advantage of the negative sentiment caused by the trade agreement. The ECB’s recent rate cut in June, the first since 2019, creates a clear policy difference from the Federal Reserve, reinforcing our bearish outlook. This is supported by recent data showing that the US economy added a surprising 272,000 jobs, strengthening the Dollar. Therefore, we expect a move towards or below the 50-day moving average is very likely.

Risk Management Strategies

For those concerned about a potential rebound, we recommend using a bear put spread instead of a direct short position. This options strategy reduces risk and lowers initial costs while still allowing for profits if the Euro falls. It’s a wise move since medium-term technical signals still show some bullish tendencies. The Dollar’s strength is also impacting other pairs, making the British Pound weaker. Traders might consider a similar strategy by buying puts on GBP/USD. Historical trends suggest that broad rallies in the Dollar, fueled by US economic strength, often weigh down most G10 currencies at once. We recommend against starting new long positions in gold, which is struggling to stay around $2,320 per ounce. Rising US Treasury yields make this non-yielding asset less attractive to investors looking for returns. This connection—where a strong dollar and higher yields hinder precious metals—is a well-known market trend. Key events in the upcoming week, especially the Federal Reserve meeting, are crucial for this strategy. The CME FedWatch tool indicates that markets expect rates to stay the same, so attention will be on the Fed’s future guidance. Any suggestions from the Fed that it has postponed rate cuts for too long could push the Dollar higher and support bearish derivative positions on the Euro. Create your live VT Markets account and start trading now.

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