EUR/USD edged up in early Asian trade on Monday, hovering near 1.1615 and holding above 1.1600, while US markets were shut for Labour Day. The move came after a firmer US August jobs report tempered scope for further gains in the euro. Nonfarm Payrolls rose by 162,000, compared with an upwardly revised 21,000 in July, and beat forecasts of 56,000; the Unemployment Rate was unchanged at 4.1%. Following the release, pricing for a 25 bps rise at the Federal Reserve’s September meeting shifted to 58.3% from 50.2%, according to CME FedWatch.
Focus now turns to Thursday’s European Central Bank meeting, where a Reuters poll points to a quarter-point increase that would take the deposit rate to 2.50%. Nordea strategists framed the key issue as the Fed’s guidance beyond September. In technical terms, EUR/USD remains above the 100-day moving average and the Bollinger middle band, with the RSI (14) at 55.3; resistance is seen near 1.1710, while support levels include 1.1612, 1.1565 and 1.1515.
Trading Outlook and Volatility Drivers
We suggest derivative traders prepare for heightened volatility this week as the EUR/USD holds above 1.1600 despite the blockbuster US jobs report. Since the US labor market added 162,000 jobs in August—far outpacing the predicted 56,000—the dollar has solid fundamental backing. We should look to exploit short-term fluctuations, especially as US markets reopen after the Labor Day holiday.
All eyes are on the European Central Bank this Thursday, where a projected 25-basis-point rate hike to 2.50% is highly anticipated. Historically, during weeks with conflicting central bank signals, EUR/USD weekly implied volatility can jump by over 15%, making standard option strategies highly lucrative. We recommend utilizing long straddles or strangles to capture this expected price breakout, regardless of the direction the pair takes.
Strategy and Risk Management
With the CME FedWatch tool showing September rate hike odds rising to 58.3% from 50.2%, the Fed’s upcoming guidance will dictate the medium-term trend. If policymakers signal a prolonged tightening cycle rather than a one-off adjustment, the US dollar could easily crush the Euro’s current support levels. We believe buying protective puts on the Euro is a smart way to hedge against a hawkish Fed surprise later this month.
From a technical standpoint, the pair remains constructive as it trades above its 100-day moving average of 1.1565 and the Bollinger middle band at 1.1612. We can target options barriers near the Bollinger upper band of 1.1710 for bullish breakout plays, while setting tight stop-losses near the 1.1515 support level. Positioning our trades around these key structural boundaries will help us maximize returns while managing downside risks.
