EUR/USD rose to a three-month high just above 1.1700 as the US Dollar weakened after the US Treasury said it will at least double the maximum size of its debt repurchases to $4 billion per operation from $2 billion, effective 9 September. The move followed the 30-year yield touching 5.327% on Tuesday, its highest since June 2007, before slipping by roughly 9 basis points. Attention later shifted to S&P Global PMIs: the Eurozone Manufacturing PMI improved to 52.8 from 51.9, Services held at 51.7, and Composite was 52.1; in the US, Manufacturing eased to 53.2 from 53.9, Services rose to 56.8 from 54.6, and Composite climbed to 56 from 54.5, above an expected 54.
Upcoming releases include German Q2 GDP, the US July PCE Price Index and the second estimate of US Q2 GDP, alongside the Fed’s Kansas City-hosted Jackson Hole symposium on “Financial Innovation: Implications for Payments and Policy”. The BLS will publish annual NFP benchmark revisions for the 12 months to March. Technically, EUR/USD trades above the 20-day SMA at 1.1542, the 100-day SMA at 1.1573 and the 200-day SMA at 1.1631, with RSI at 71; key support is around 1.1631 then the 1.1570 zone, while resistance sits near 1.1710, 1.1800 and 1.1850.
Derivative Trading Strategies And Market Positioning
We believe derivative traders should prepare for continued upward momentum in the EUR/USD pair, which recently broke past the 1.1700 level. Given the strong technical support at the 200-day moving average of 1.1631, we can look to implement bull call spreads targeting the 1.1800 resistance area. This strategy allows us to capture the bullish trend while limiting risk in case of a sudden currency reversal.
The US Treasury’s decision to double its bond buyback size to $4 billion starting September 9 will likely suppress long-term yields and weaken the US dollar further. Historically, during the Treasury buyback programs of the early 2000s, government bond yields fell sharply, which heavily pressured the greenback. We suggest buying short-term put options on the US Dollar Index (DXY) to profit from this anticipated liquidity injection in the coming weeks.
With the upcoming Jackson Hole Symposium and the US PCE inflation data on the horizon, we expect market volatility to spike. Traders should consider buying long straddles on EUR/USD to capitalize on large price swings regardless of which way the market breaks. Implied volatility in the currency options market typically rises ahead of these major central bank gatherings, making pre-emptive volatility positioning highly attractive.
Geopolitical tensions in the Middle East and the threat of new sanctions against Iran are driving energy prices higher. To hedge against embedded inflation, we recommend taking long positions in Brent crude oil call options. Historically, crude prices have risen significantly during prolonged geopolitical stalemates, which will continue to support this commodity play.
Risk Management And Protective Strategies
Although the weekly chart exhibits a strong bullish bias, the daily Relative Strength Index (RSI) is currently hovering around 71, indicating overbought conditions. To protect existing long positions, we should consider buying out-of-the-money protective puts with a strike price near the 1.1570 support zone. This ensures our portfolios are shielded if the upcoming German Q2 GDP or US payroll revisions trigger a temporary downside correction.
