The EUR/USD dropped to 1.1589 as the US Dollar gained strength. This was fueled by speculation that the Federal Reserve might keep rates steady in December. Additionally, news of the potential reopening of the US government introduced volatility ahead of the Nonfarm Payrolls and earnings reports.

The Dollar’s Rise

The US Dollar climbed as concerns about an AI bubble led investors to seek safety. The Federal Reserve showed mixed signals: Vice-Chair Philip Jeffers seemed slightly dovish, while Governor Christopher Waller pushed for continued easing in December. The Dollar Index increased by 0.20% to 99.47, bolstered by a New York Fed survey that indicated growth in manufacturing conditions. However, optimism waned as the six-month business outlook sharply declined from 30.3 to 19.1. Looking at the EUR/USD technical outlook, the pair shows a bearish trend, nearing the 50-day SMA at 1.1581. If sellers break the 1.1550 level, the next support might be 1.1500. The Euro is a key currency used by 20 European Union countries. Its value is influenced by European Central Bank (ECB) policies, inflation data, and economic indicators like GDP. Trade balance data, which reflects the difference between exports and imports, also plays a vital role.

EUR/USD Volatility

The US Dollar is gaining traction, pushing the EUR/USD below the key 1.1600 level. This is due to increased belief that there’s a 57% chance the Federal Reserve will not cut interest rates in December, a shift from earlier expectations. This change makes holding dollars more appealing. Market anxiety is rising, partly due to fears of an AI bubble, with NVIDIA’s earnings report on Wednesday drawing major attention. This uncertainty, alongside a backlog of economic data from the government reopening, is leading traders to flock to the safety of the dollar. Implied volatility for EUR/USD options expiring after this week’s data releases has jumped to 9.2%, up from a 7.8% average last month, indicating expected price swings. The Nonfarm Payrolls (NFP) report, now set for Thursday, is the most important upcoming event. After a strong jobs report in September showing 215,000 jobs added, economists now expect a weaker 170,000 for October. Any significant deviation could impact the market sharply. A similar situation happened after the prolonged government shutdown between 2018-2019, resulting in notable currency volatility for weeks. While some Fed officials have expressed caution, the market seems to be overlooking these comments and focusing instead on the potential for sustained high rates. In contrast, the European Central Bank appears less concerned about inflation, which was reported at 2.7% in October, nearing its target. This leaves the EUR/USD largely influenced by upcoming US economic data and Fed policy signals. The technical outlook suggests a continued decline for the Euro, with a major support level near 1.1550. Derivative traders might want to prepare for further downside by buying put options with a strike price of 1.1550 or 1.1500. Due to a high likelihood of market volatility around the NFP data, options could offer better risk management than trading directly. For those expecting a sharp reversal based on weak US data, buying near-term call options with a strike above 1.1625 could be a good strategy. However, current momentum supports selling rallies as the more likely approach. The drop below 1.1600 shows that sellers are in control right now. Create your live VT Markets account and start trading now.

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