EUR/USD slipped to about 1.1380 in early Asian trade on Monday as hawkish Federal Reserve messaging and heightened Middle East tension lent support to the dollar. Markets are also looking ahead to Germany’s Retail Sales and Consumer Price Index data due on Wednesday. Rate expectations have firmed: the CME FedWatch tool shows nearly a 65.9% probability of a Fed benchmark hike in October, up from 57.6% a week earlier and 9.4% a month earlier. Separately, the European Central Bank raised its deposit rate by 25 basis points to 2.50% in September; Reuters pricing implies roughly a 45% chance of another 25 bps move in October, with a further increase fully priced only by December at the earliest.
UOB said the fall accelerated after 1.1400 gave way, taking the pair to 1.1358, while pointing to support at 1.1355 and 1.1325 and resistance at 1.1430. Hammack’s FXS Speechtracker score was 7.2/10 versus a 7.5/10 historic average, while the FXS Fed Sentiment Index eased 0.34 points to 147.72, remaining above the neutral 100 level. On the charts, EUR/USD is below the 100-day simple moving average and the Bollinger mid-line; the 14-day Relative Strength Index is near 27, with support around 1.1340 and resistance at 1.1525–1.1530, then 1.1708.
Oversold Conditions and Short-Term Trading Opportunities
We suggest that derivative traders look closely at the deeply oversold conditions of the EUR/USD, which is currently hovering around 1.1380. With the daily Relative Strength Index (RSI) sitting at a low of 27, historical data shows that such extreme levels often trigger a short-term corrective bounce of 50 to 100 pips. We recommend setting tight buy-limit orders near the solid support zones of 1.1355 and 1.1325 to capture this potential rebound before the broader downtrend resumes.
The market is currently pricing in a 65.9% chance of a Federal Reserve rate hike in October, up significantly from last month’s 9.4%. To trade this momentum, we advise utilizing short-term options strategies, such as buying EUR/USD put options on any brief corrective spikes toward 1.1430. This allows us to profit from the broader bearish trend driven by a hawkish Fed while keeping our risk limited.
Geopolitical Risks, Volatility Strategies, and Data Sensitivity
With rising Middle East tensions threatening crucial global shipping lanes, safe-haven demand is highly likely to keep supporting the US Dollar in the coming weeks. During similar geopolitical conflicts, such as the market shocks in early 2024, one-month EUR/USD implied volatility jumped by more than 1.2% in a matter of days. We should consider volatility-buying strategies, like straddles, to profit from sudden, sharp market swings as this geopolitical situation develops.
Additionally, the Euro remains highly sensitive to incoming European data, especially with markets pricing in only a 45% chance of an October European Central Bank rate hike. This Wednesday’s German retail sales and inflation reports could quickly shift these expectations and spark sharp, unexpected movements. We believe traders should stay nimble, using knock-out options to protect existing positions from sudden spikes if the German inflation numbers surprise to the upside.
