EUR/USD traded lower on Thursday, ending a two-day advance as the US Dollar stabilised after sliding on softer-than-expected US inflation data. The pair was around 1.1457, down modestly on the session. Risk appetite remained fragile as renewed Middle East tensions lifted Oil prices and raised concerns that June’s inflation easing could reverse, which in turn helped limit further USD weakness while markets continued to price in a Federal Reserve rate increase later this year.
The US Dollar Index (DXY) was near 100.60 after dropping to 100.35 on Wednesday, its lowest level since 18 June. US labour data added support, with Initial Jobless Claims at 208K for the week ending 11 July versus a 217K forecast. US Retail Sales rose 0.2% MoM in June, matching expectations, while May was revised to 1.0% from 0.9%; the Retail Sales Control Group printed 0.5%, down from 0.8% in May and in line with forecasts. Separately, the US executed a fifth consecutive night of strikes on Iranian targets, and Iran responded against US assets in Kuwait, Bahrain and Jordan; WTI traded near $80, up about 12% this week. A Reuters poll showed all 74 economists expect the ECB deposit rate to hold at 2.25% in July, while 70% expect one more rise this year, most likely in September.
Derivative Strategies For EUR/USD And The US Dollar
Given the sudden downward pressure on the EUR/USD pair toward 1.1457 and a stronger US Dollar Index at 100.60, we recommend derivative traders focus on short-term EUR/USD put options in the coming weeks. The stronger-than-expected US labor data, with jobless claims dropping to 208,000, suggests the US economy remains highly resilient. This economic strength supports the case for the Federal Reserve to keep interest rates higher for longer, favoring the Greenback.
Energy Volatility, Inflation, And Interest Rate Futures
We must also brace for increased volatility in energy markets as West Texas Intermediate (WTI) crude surges 12% this week toward $80 due to escalating Middle East conflicts. Historically, threats to critical maritime chokepoints like the Bab el-Mandeb strait have caused immediate spikes in shipping costs and oil prices, much like the 150% surge in global freight rates seen during the 2024 Red Sea crisis. Traders should consider buying out-of-the-money call options on WTI futures to hedge against sudden supply disruptions.
Rising energy costs threaten to reverse recent cooling inflation trends, meaning we should prepare for tighter monetary policy from both the Fed and the European Central Bank (ECB). While the ECB is widely expected to pause its deposit rate at 2.25% this month, a solid 70% of economists already anticipate another rate hike by September. We suggest trading short-term interest rate futures, such as Euribor or Secured Overnight Financing Rate (SOFR) contracts, to position for these renewed hawkish shifts.
