EUR\/USD held modest gains on Friday but found it hard to build on them as the US Dollar steadied after Thursday\u2019s weaker-than-expected US jobs report, with trading conditions muted because US markets were shut for the Independence Day holiday. The pair was around 1.1438 after reaching an intraday high of 1.1462, putting it on course to break a two-week losing run. The US Dollar Index (DXY) hovered near 100.76, having earlier touched a two-week low of 100.56.<\/p>\n
Markets recalibrated expectations for the Federal Reserve (Fed) and the European Central Bank (ECB). Soft US jobs data reduced near-term pricing for a Fed rate rise, while earlier weaker Eurozone inflation figures led to fresh questions over whether the ECB will tighten again this year. Even so, inflation remains above each bank\u2019s 2% target, keeping the prospect of further tightening in play, and pricing still points to the Fed raising rates later this year. EUR\/USD trading levels referenced included 1.150\u20131.153 as a potential ceiling, with 1.16\u20131.17 cited as a higher zone.<\/p>\n
We are seeing the EUR\/USD holding near 1.1440, a direct result of the weaker US jobs report released just before the holiday. The June non-farm payrolls data showed a gain of only 155,000 jobs against an expected 190,000, pushing the US unemployment rate up slightly to 4.1%. This has led markets to price out the chance of an imminent Federal Reserve rate hike, giving the euro a temporary lift.<\/p>\n
At the same time, the outlook in Europe is also cloudy, with preliminary June inflation figures for the Eurozone coming in softer than expected at 2.4%. This gives the European Central Bank less reason to pursue another rate hike, creating a tug-of-war between the two currencies. We believe the key question for the next few weeks is which central bank the market perceives as being more hesitant.<\/p>\n
From a trading perspective, this suggests that the pair’s upward momentum is limited for now, and we expect significant resistance around the 1.1500-1.1530 area. We are looking at selling short-dated EUR\/USD call options with strike prices above 1.1550 to collect premium, betting that the pair will remain in a range. This strategy takes advantage of the view that a strong breakout is unlikely before we get more definitive inflation data in late July.<\/p>\n
This situation is reminiscent of the choppy trading we saw in 2023 as markets constantly repriced central bank expectations, causing sharp but short-lived moves. While the immediate risk is that conviction in an ECB hike fades faster than it does for the Fed, we are still cautious about being overly bearish on the pair. We would view any significant dip back towards the 1.1300 level as a potential opportunity to buy longer-term call options for a rally later in the summer.<\/p>\n\n\n\n