The Euro is trading near a one-month low due to concerns surrounding the EU-US trade deal. Eurozone’s GDP showed unexpected growth in the second quarter. The EUR/USD exchange rate is on a downward trend and is set for its first monthly decline since December.
Ahead of the US Federal Reserve’s decision, the Euro attempts a recovery but struggles below 1.1575. It’s trading over 2% lower since Monday. Meanwhile, US GDP is expected to show a 2.4% annualised growth in the second quarter following a previous contraction.
US Federal Reserve Decision
For Wednesday, the key event is the US Federal Reserve’s decision on interest rates, with Chairman Jerome Powell’s statements closely monitored. Days prior, the US recorded a decline in job openings and a rise in consumer confidence, though wary of tariffs.
The Euro is also pressured by a higher US Dollar amid prolonged US-China trade negotiations. In Europe, GDP figures indicated a slight expansion, with German retail sales and France’s GDP showing better-than-expected results. The EUR/USD remains bearish, with technical indicators at oversold levels, and is poised for a testing of the 1.1450 support level.
From our perspective today, these past market conditions from mid-2018 offer a valuable lesson. At that time, the EUR/USD was under pressure near 1.1500 due to trade deal anxieties. We are seeing a different picture now, with the pair trading much lower, around 1.0750, showing the long-term impact of shifting monetary policies.
ECB And US Economic Outlook
Back then, the focus was on a strong US dollar and a US Federal Reserve that was tightening policy. Today, the situation is more complex as we watch the European Central Bank signal a more aggressive stance to fight inflation, which recent data showed is holding stubbornly at 2.8% in the Euro area. This contrasts with a US economy where the latest jobs report from early July 2025 showed a surprising slowdown in hiring.
The trade concerns of that era, centred on tariffs, have evolved into new frictions over digital services taxes and regulatory divergence. This continues to weigh on the Euro, but the dynamics are no longer as one-sided. We should be wary of assuming the dollar will rally on trade news alone, as it did in the past.
Given the recent weaker US data, we believe the aggressive bearish sentiment seen in 2018 may not be the right play now. The market is pricing in a greater chance of the Fed pausing its tightening cycle before the ECB does. Therefore, we are looking at options strategies that profit from volatility rather than a straight directional bet against the Euro.
Technical indicators are not as oversold as they were during that previous period of decline. The EUR/USD has been consolidating in a tight range ahead of next month’s central bank symposiums. We see opportunity in buying straddles on the EUR/USD, positioning for a significant move in either direction once central bankers provide clearer guidance.
