EUR/USD was trading around 1.1418, with the euro down 0.2% against the US dollar and sitting mid-pack within the G10 during a period of broad-based dollar strength. Euro area PPI and retail sales met expectations, while German factory orders beat forecasts. Short-term rates have steadied over the past week, and rising implied yields on medium-term contracts have helped the curve normalise after an inversion that had persisted for most of the period since mid-March.
The next ECB decision is due on 23 July, with markets pricing no policy change. Expectations also imply a 50% probability of a 25bpt rate increase on 10 September. On technicals, the RSI has recovered from a late-June sub-30 reading to the low 40s, drifting back towards the neutral 50 level, while the medium-term profile remains rangebound from mid-2025 between roughly 1.1300 and 1.2100. Near-term support is seen at 1.1380, with resistance above 1.1480.
Dollar Strength And Euro Struggles
We see the Euro showing a soft tone against the dollar, which is strong across the board. This follows last Friday’s US jobs report, which showed hotter-than-expected wage growth and reinforces the case for a firm Federal Reserve policy. In this environment, we expect EUR/USD to struggle to find upward momentum.
The market has stabilized its expectations for the European Central Bank, anticipating no policy change at the July 23rd meeting. With recent Eurozone inflation data holding steady at 2.4%, traders are pricing in only a 50% chance of a rate hike in September. This ECB indecision creates a contrast with the clearer policy signals coming from the United States.
Strategy: Favoring Range-Bound And Volatility Selling Approaches
Given the largely neutral medium-term trend, we believe selling volatility is the most sensible derivative strategy in the coming weeks. The established range, roughly between 1.1300 and 1.2100, makes strategies like selling strangles or iron condors particularly attractive. This approach is designed to profit from time decay as the pair likely continues to trade sideways.
For shorter-term positions, we are focused on the tighter range defined by support at 1.1380 and resistance near 1.1480. Selling out-of-the-money call options with strike prices above 1.1500 and put options with strikes below 1.1350 allows us to collect premium. We anticipate implied volatility will decrease as we approach the quiet summer period, barring any surprises.
The primary risk to this range-bound view is an unexpectedly aggressive tone from the ECB later this month. Historically, periods of central bank policy divergence, such as what we saw in 2017-2018, can eventually lead to sharp trend moves. We will therefore keep positions managed carefully around key inflation data releases.
