EUR/USD stayed above 1.1600 on Tuesday after a 28-pip session that ended half a pip from the open, even as European gas climbed to a three-year high and the ECB is expected to raise rates on Thursday. Dutch front-month gas rose as much as 3.4% to its highest since January 2023, trading near €75.00 per megawatt-hour and about 128% above a year ago, while storage sat 67% full versus an 83% seasonal norm with less than a month before the heating season. The Strait of Hormuz has been shut since February 28 and Qatar has extended force majeure on European and Asian cargoes through the autumn; Russian pipeline gas has dropped from roughly 40% of demand to under 15%, and the bloc now buys more than 120 billion cubic metres of seaborne gas a year.
The ECB is seen lifting the deposit rate to 2.5% from 2.25% on Thursday, alongside a main refinancing rate of 2.65%, but energy costs have moved faster, with gas up 23% in a month; the November storage target has been eased from 90% to 80%, and storage is the lowest for the date since the series began in 2011. US data then crowd the calendar: private payrolls at 12:15 GMT on Wednesday followed 11.75K, while Thursday brings the Fed decision at 12:15 GMT, PPI at 12:30 GMT and a press conference at 12:45 GMT; PPI is seen at 0.4% m/m after a flat July and 5.3% YoY after 4.7%, with core at 0.3% and 4.6%. Friday’s CPI is forecast at 0.4% m/m, 3.4% YoY and 2.4% core ahead of the September 15–16 meeting with a quarter point priced near 58%, before Michigan sentiment at 51 versus 51.7 and one-year inflation expectations previously at 4%; technically, resistance sits at 1.1650 then just under 1.1700, while support is 1.1600, with the 50-day and 200-day EMA six pips apart just above 1.1550 and 1.1500 below.
Trading Strategy and Key Risks
We should prepare for a bearish move on EUR/USD in the coming weeks, targeting a break below the 1.1600 support level. Although the ECB is expected to raise the deposit rate to 2.5% this Thursday, this minor annual yield increase is completely overshadowed by Europe’s soaring weekly energy bills. Historically, rate hikes fail to support a currency when a terms-of-trade crisis is actively draining capital from the region.
With European natural gas prices near €75 per megawatt-hour—a massive 128% increase from last year—the Eurozone is facing an expensive import bill just before winter. Currently, EU gas storage sits at just 67% capacity compared to the 83% seasonal norm, forcing utilities to compete for expensive seaborne cargoes. This supply squeeze is highly reminiscent of the 2022 energy crisis when soaring import costs pushed the Euro below parity against the Dollar.
We advise derivative traders to establish short positions while the 1.1650 resistance level caps the currency pair’s upside. A daily close below the crucial 1.1600 support handle will likely trigger a rapid decline toward the 50-day and 200-day moving averages clustered near 1.1550. If this cluster breaks, the next major downside target rests at the psychological 1.1500 mark.
U.S. Data and Geopolitics: Dollar Strength and Option Plays
On the other side of the pair, upcoming U.S. inflation and labor data this week could rapidly strengthen the Dollar. Markets are bracing for the U.S. CPI release on Friday, with core inflation expected at 2.4% and a potential Fed rate hike heavily priced in. This monetary divergence, combined with Europe’s structural energy deficit, makes buying cheap downside protection on the Euro highly favorable.
Traders must also monitor geopolitical headlines regarding the Strait of Hormuz, as any breakthrough in Iran-Oman transit talks could quickly lower gas prices and spark a sharp EUR/USD short-squeeze. However, until a safe maritime route is officially secured, the fundamental pressure on the Euro remains heavily to the downside. We recommend utilizing options strategies like bear put spreads to limit risk while capturing this expected downward momentum.
