The euro rose more than 0.85% against the US dollar in Wednesday’s North American trade, lifting EUR/USD to about 1.1673–1.1678 and keeping it near two-and-a-half-month highs, as softer US yields offset a hawkish tone in the latest Fed minutes. The record showed some participants, alongside three dissenters, arguing that further rate rises could be needed if disinflation stalls, while many judged additional tightening likely if inflation failed to fall. There was no discussion of easing. Separately, Fed Chair Kevin Warsh floated the idea of six policy meetings to allow two months of full data, though the 2026 schedule will stay unchanged; attention also turned to a US Treasury buyback of long-end bonds, which Bloomberg sources described as a form of yield curve control aimed at suppressing long-term rates.
In the euro area, July HICP inflation rose to 2.9% from 2.8% and underlying inflation increased to 2.5% from 2.4%. Markets expect the ECB to raise rates by 25 basis points on 10 September, with money markets pricing an 88% probability, according to Prime Terminal data. On the chart, the 14-period RSI stands at 72.8, with resistance near 1.1849 and support around 1.1678, then 1.1459 and the 1.1470 moving-average cluster.
Macro Backdrop and Trade Strategy
We suggest derivative traders adopt a cautiously bullish stance on the EUR/USD as the pair hovers near its two-and-a-half-month high of 1.1673. While the Fed’s hawkish minutes have introduced some dollar volatility, the US Treasury’s active bond buybacks are keeping long-term yields suppressed, which fundamentally pressures the greenback. This yield-curve suppression, coupled with a rising Eurozone HICP of 2.9%, creates a strong macro backdrop for Euro strength.
With money markets pricing in an 88% probability of a 25-basis-point rate hike by the ECB on September 10, we expect upward pressure on the Euro to persist over the coming weeks. To capitalize on this, traders should look to establish bull call spreads, targeting the key horizontal resistance level at 1.1849. This strategy limits risk while positioning for the policy divergence between a hawkish ECB and a yield-capped Federal Reserve.
Option Tactics and Technical Considerations
However, we must note that the daily Relative Strength Index (RSI) is currently sitting in overbought territory at 72.8. This technical exhaustion suggests that the immediate upward move could slow down or experience a minor correction before the ECB meeting. Derivative traders can exploit this temporary pause by selling short-term, out-of-the-money call options to collect premium while waiting for a better entry point.
If a corrective pullback occurs, we see solid support clustered around the 1.1459 to 1.1470 range, where buyers are highly likely to step back in. Selling put options down at these support levels allows us to collect premium while preparing to acquire long exposure at a discount. We should closely monitor the upcoming S&P Global Flash PMIs and German PPI data to time these entry points.
