The Euro is gaining strength, helped by a positive report from the European Central Bank (ECB) and a weaker US Dollar. Recent ECB data showed that demand for mortgages and corporate credit has risen, pushing the Euro above the 1.1700 level. Worries about US trade tariffs are affecting the US Dollar. The recent rise of the Greenback is slowing down as uncertainty around the August 1 tariffs deadline creates market nervousness.

Euro Strength Against the New Zealand Dollar

In currency markets, the Euro strengthened by 0.39% against the New Zealand Dollar, although it had a mixed performance against other major currencies. Despite concerns about the trade war, businesses in the Eurozone appear optimistic about growth, which supports the Euro. The ECB’s decisions on monetary policy are important in this context, especially considering the possible impacts of Quantitative Easing or Tightening. Technical indicators suggest that the EUR/USD pair may rise, even with daily fluctuations. Resistance is seen at 1.1720, while a fall below 1.1655 could change this outlook. The ECB aims to keep inflation at around 2% to maintain price stability. They do this by adjusting interest rates and using Quantitative Easing when necessary, which in turn affects the Euro.

Traders’ Strategy Recommendations

Given this situation, we recommend a thoughtful trading strategy. While a previous report indicated increased credit demand, the latest ECB Bank Lending Survey from late 2023 showed a notable drop in loan demand. This tightening of credit is likely due to earlier interest rate hikes, suggesting potential challenges for the Euro. Concerns about the dollar are still relevant, but the focus has shifted from tariffs to inflation. The latest US Consumer Price Index data from January 2024 revealed a higher-than-expected year-over-year inflation rate of 3.1%, leading to uncertainty about the Federal Reserve’s interest rate decisions. This uncertainty is a significant factor contributing to the dollar’s weakness. We suggest traders consider strategies that can benefit from a stable range in the EUR/USD pair. Buying call options with a strike price above the current resistance near 1.0900 could take advantage of a potential breakout. Conversely, buying put options below support at 1.0720 can safeguard against a decline. This approach allows traders to be prepared for price movement in either direction with known, limited risk. Historically, the Euro tends to strengthen during periods of ECB policy tightening, as we have seen over the past year. Even if there is a pause in action, the relatively high interest rates provide support against currencies where rate cuts are likely. We expect the pair will remain sensitive to upcoming inflation reports from both regions, which will be key in driving central bank decisions. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now