The US dollar initially advanced before comments by Fed governor Waller hinted at a potential rate cut in July, causing it to dip slightly. Despite this, Fed funds futures indicate about a 97% likelihood of no rate cut occurring this month.
This stability suggests the dollar’s decline may be limited. Regarding EUR/USD, option expiries might restrict volatility. The 100-hour moving average at 1.1634 serves as a near-term technical reference before expiries at 1.1650 could influence market movements.
gbp/usd expiries and effect
Additionally, GBP/USD expiries hover around the 1.3400 level, close to recent daily lows. While not of major technical importance, these could tame immediate downside risk before their expiration later in the session.
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We believe the reaction to one official’s dovish take is an overreaction that will likely be short-lived. The CME FedWatch Tool currently shows an 88.5% probability that the Federal Reserve will hold rates steady at its next meeting, reinforcing the idea that an imminent cut is not the consensus. Therefore, any dollar weakness spurred by outlier comments should be viewed as a temporary dip rather than a new trend.
For EUR/USD, this translates to contained price action in the immediate future, pinned by significant options interest. Large expiries are currently clustered around the 1.0750 level, which will likely act as a gravitational pull on the spot price. We are watching the 50-day moving average, now at 1.0790, as the key technical barrier that needs to break before any sustained directional move can begin.
gbp/usd option levels
A similar dynamic is unfolding in GBP/USD, where a notable block of options is set to expire around the 1.2700 mark. This level is psychologically important and sits near the highs from the previous month, suggesting it could cap any rallies in the near term. We see these options as a force that will likely dampen upside volatility ahead of their expiry.
Historically, periods of policy uncertainty just before a potential Fed pivot, like the one seen in late 2018, are marked by a sharp increase in implied volatility. The MOVE Index, a measure of bond market volatility, has recently climbed over 15% from its yearly lows, signaling that the broader market is preparing for bigger price swings. This suggests that the current calm in currency markets may not last.
Given this backdrop, we think selling options to collect premium is a risky strategy right now. Instead, traders should consider buying option structures like straddles or strangles on major dollar pairs. This approach positions a portfolio to profit from the breakout in volatility that we expect in the coming weeks, regardless of the ultimate direction.
