The Euro strengthened against the US Dollar after recovering from a three-week low, trading above 1.1600. This rise followed President Trump’s threats to remove Federal Reserve Chair Jerome Powell and a disappointing US Producer Price Index (PPI) report. Initially, there were claims that Trump wanted to fire Powell, which he later denied. Despite his denial, Trump criticized Powell for not cutting interest rates sooner. Additionally, the US PPI fell short of expectations, affecting the currency’s performance.

Fed’s Beige Book Report

The Fed’s Beige Book showed a slight uptick in economic activity but highlighted ongoing uncertainty, especially regarding employment and pricing due to tariffs. The June PPI showed a year-on-year rise of 2.3%, a drop from May’s 2.6%, and below expectations. Interest rate forecasts indicate a strong chance of no changes at the next Fed meeting, with few rate cuts expected by the end of the year. The European Central Bank (ECB) is also expected to keep rates steady, though some officials favor rate cuts due to potential growth risks. For EUR/USD to continue its upward trend, it must close above the 20-day Simple Moving Average at 1.1681, with several resistance and support levels identified. The Euro’s value depends on various economic factors and data releases. The recent bounce in the Euro seems more like a reaction to weakness in the US Dollar rather than a sign of strength. Political pressure on the Federal Reserve and softer inflation data are creating uncertainty. This makes directional bets risky and suggests a more careful approach in the upcoming weeks.

Traders’ Considerations

Traders should avoid overreacting to political remarks about the central bank’s leadership. Mr. Powell has consistently focused on data, and the recent US Consumer Price Index reading of 3.3% supports a cautious stance on rate cuts. The CME FedWatch Tool indicates a nearly 65% chance of a rate cut by September, but this could change quickly with the next employment report. Meanwhile, the ECB has already started its own easing cycle with a rate cut earlier in June but stated it is in no hurry to cut rates again. Officials attribute their caution to ongoing wage inflation. This difference in approach between the two central banks creates a complex scenario for the currency pair. Historically, such policy divergence—like in 2014 when the US planned to raise rates while Europe eased—has led to strong and sustained trends. Currently, 3-month implied volatility for the currency pair is close to multi-year lows at around 5.8%, indicating market complacency. This low cost of options may present opportunities for traders to buy straddles or strangles, setting up for significant market movements in either direction. Therefore, we advise monitoring key technical levels to confirm any fundamental shifts before making a strong directional bet. A consistent close above the 50-day Simple Moving Average, currently around 1.0810, would signal that the Euro’s upward momentum is reliable. Until then, trading within the established range with options is a more cautious strategy. Create your live VT Markets account and start trading now.

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