The Euro is holding steady against the US Dollar after minor losses, supported by positive trade sentiment. Traders are closely watching the upcoming meetings of the Federal Reserve and the European Central Bank (ECB). Studies indicate that the connection between the Euro and yield spreads is strengthening, suggesting a focus on fundamental changes. The ECB is staying neutral, while the Fed seems more dovish. With little important data coming ahead of the Eurozone’s GDP and Germany’s CPI releases, caution remains.

Technical Indicators

The Euro’s technical indicators show a neutral position. The Relative Strength Index is below 50, and the 50-day moving average is stable. The Euro has traded within a tight range since July, between 1.1600 and 1.1700. Significant price movements are unlikely unless it breaks 1.1750. The FXStreet Insights Team, a group of selected journalists, compiles market observations and insights from various financial experts. They blend notes from commercial sources with analyses from both internal and external professionals. As we approach this week’s key central bank meetings, the Euro remains steady against the US Dollar. Markets appear to be in a wait-and-see mode ahead of the Federal Reserve’s announcement tomorrow and the ECB’s on Thursday. The subdued price movements suggest that traders are waiting for clear signals before making major decisions.

Central Bank Policies

The differences between central bank policies are driving the market, similar to 2021-2022. Recent US inflation data shows an increase of 2.8%. Markets are anticipating potential Fed rate cuts in early 2026, while the Eurozone’s higher CPI of 3.1% keeps the ECB from adjusting rates. This gap is widening the US-German 2-year yield spread, which has historically influenced this currency pair. Given the narrow trading range, selling options to earn premium seems a smart strategy. For instance, traders could set up short strangles or iron condors with strikes outside the 1.0800 to 1.1050 range to benefit from low volatility. Implied volatility on one-month EUR/USD options has dropped to just 5.8%, a significant decline from earlier in 2023, making these strategies more appealing. However, traders should be wary of potential breakouts due to surprises from the Fed or the ECB this week. A move above the 1.1050 resistance level could lead to a rapid increase, making long call options or bull call spreads suitable for those expecting a dovish surprise from the Fed. We maintain a neutral stance until the price definitively breaks the current range. Create your live VT Markets account and start trading now.

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