The Euro is trading cautiously during the North American session on Wednesday, despite better-than-expected economic data from the euro area. Confidence figures and Q2 GDP results for the Eurozone surprised slightly, but the Euro did not gain much traction. The Euro’s trend remains bearish, as there has been a significant drop in the option market’s premium for EUR upside protection. CFTC data shows a bullish stance from speculators, but the Euro still has some support due to central bank policies that suggest narrowing yield spreads between Germany and the US. On Tuesday, the Euro fell below the 50-day moving average support level of 1.0932, indicating a bearish trend. The RSI is under 50 and nearing 40, hinting at further bearish momentum. Support is expected in the mid-1.14 range, with short-term levels from 1.15 support to 1.16 resistance. The EUR/USD pair is around 1.1550 following strong German and Eurozone GDP data, even with a weaker US Dollar. The US is projected to show Q2 GDP growth of 2.5% after a 0.5% drop in Q1, while attention shifts to the Federal Reserve’s policy in a steady labor market and robust consumption. The Euro is having trouble gaining momentum, remaining around 1.1550 despite positive economic news from Europe. This inability to rise in response to good data suggests underlying weakness. The market seems to be considering other factors, especially the strength of the US economy. With bearish signals like the RSI falling below 50, we think it’s wise to look at derivative strategies that profit from a decline or stagnation in the Euro. Recent data from Cboe shows the EuroCurrency Volatility Index (EVZ) has risen to 7.8, the highest since the May 2025 inflation reports, indicating that traders are seeking protection against a potential drop. This makes strategies like purchasing August puts or setting up small bear put spreads around the 1.15 strike price appealing. However, we should keep in mind the mixed signals from fundamentals, especially as the gap between German and US government bond yields narrows. Earlier this month, the German 10-year yield increased while US yields stayed stable, a trend historically favorable for the Euro. This suggests that aggressively betting on a major drop might be too soon, and selling out-of-the-money calls above the 1.16 resistance could offer a way to collect premium. All attention is now on the advance estimate for US Q2 GDP growth, set to be released tomorrow, July 31st. The expectation is for a strong 2.5% growth, a sharp recovery from the first quarter’s contraction in 2025. A stronger-than-expected result would likely push the EUR/USD pair lower, potentially breaking the 1.15 support level. With these mixed forces at play, we anticipate the Euro to stay trapped between 1.15 support and 1.16 resistance in the short term. This range-bound situation, resembling conditions seen during parts of 2024, is often suitable for low-volatility strategies, like selling an iron condor. This approach allows us to profit as long as the Euro doesn’t make significant moves in either direction before the options expire.

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