The EUR/USD pair concluded the week with a nearly 1% rise. This came despite U.S. economic data performing below expectations, counterbalanced by optimistic trade updates.
Economic Data Highlights
Positive trade developments between the U.S. and the EU contributed to the uplift in sentiment. The U.S. durable goods orders fell 9.6% in June compared to May’s 16.5% rise, with transportation significantly impacted. Core orders increased 0.2%, hinting at modest business investment strength.
President Trump indicated progress in deals with Japan and potential agreements with the EU and China. However, EU member states will vote on counter-tariffs against US goods if no US trade deal is reached.
The ECB left its interest rates unchanged at 2% amidst intragroup uncertainties. Meanwhile, next week’s focus will be on the FOMC meeting, U.S. GDP figures, EU inflation data, and employment statistics.
Technical analysis suggests EUR/USD consolidates around 1.1750. A move above 1.1800 could challenge the annual high of 1.1829, while a support break might target the 1.1556 level. The Euro’s value is influenced by economic data releases and trade balances.
We see the recent rise in the currency pair as fragile, given it was driven more by trade optimism than strong economic fundamentals. The conflicting signals between weak U.S. data and positive sentiment from trade developments suggest a market without clear direction. This environment of uncertainty often precedes a period of higher volatility.
Federal Open Market Committee Meeting
The upcoming Federal Open Market Committee meeting will be pivotal for the dollar’s direction. With recent U.S. inflation data hitting 3.1% in June, we anticipate a more hawkish tone compared to the European Central Bank, which is grappling with a lower Eurozone inflation rate of 2.4%. This policy divergence historically strengthens the dollar against the euro.
Next week’s U.S. GDP figures are another major catalyst, with consensus estimates around 2.1% growth for the second quarter. A stronger-than-expected number would reinforce the case for a robust U.S. economy and a stronger currency. We are therefore positioning for increased volatility around these key data releases.
While comments from the former president on trade deals provide temporary lifts, the underlying friction remains a significant risk. The continued threat of EU counter-tariffs on goods, should a deal falter, creates an unpredictable environment. Historically, these trade disputes have led to sharp, unexpected moves in the currency market.
We view the consolidation around 1.1750 as an opportunity to position for a breakout using options. Buying straddles or strangles allows traders to profit from a significant move in either direction, which seems likely given the upcoming event risks. The low implied volatility preceding major data releases often makes this an attractive strategy.
A definitive break above the 1.1800 level would be our trigger to look at call options targeting the yearly high. Conversely, a failure to hold support and a move towards 1.1556 would make put options appealing. We advise against taking large, unhedged positions until the outcome of next week’s central bank meeting is clear.
