EUR/USD edged lower, with the euro down 0.1% against the US dollar and drifting towards one-month lows in the mid-1.13s, near levels last seen in May 2025. The broader USD tone has driven price action, while yield spreads point to waning underlying support as markets adjust to softer European Central Bank rate expectations following last Thursday’s policy decision.
Futures pricing has been pared back beyond the next meeting even as the ECB continues to guide towards a September hike, leaving near-term fundamentals focused on Friday’s preliminary CPI release. On the charts, momentum indicators have deteriorated, with the RSI in bearish territory and only limited support ahead of the low 1.13s and the late-June low; a break would renew downside risk towards May 2025 levels and raise the prospect of a retracement from parity. Near-term trade is framed within a 1.1300–1.1400 range.
Derivative Strategies for a Weaker Euro
We recommend that derivative traders position for a weaker Euro as it drifts toward the mid-1.13s against the US Dollar. With short-term technical indicators like the Relative Strength Index (RSI) flashing strong bearish signals, buying EUR/USD put options with a strike of 1.1300 is a highly viable strategy. This setup protects our capital while allowing us to profit from the ongoing downward momentum.
Yield Spreads and Near-Term Range Outlook
Our bearish outlook is supported by shrinking bond yield spreads as investors aggressively scale back their expectations for European Central Bank rate hikes. For instance, Eurozone core inflation has recently eased to 2.7%, while the German 10-year Bund yield has slid down to 2.15%. These shrinking yields make the US Dollar much more appealing to international investors, especially with US Treasury yields holding firm.
We anticipate the currency pair will trade tightly within a 1.1300 to 1.1400 range over the next few weeks. Option traders can exploit this consolidation by selling out-of-the-money call and put spreads to collect premium. However, if the key 1.1300 floor breaks, we should immediately prepare for a much deeper drop toward the lows last seen in May 2025.
