Insights 
VT 
The Euro is attempting to stabilise around the mid-upper 1.15 range after a recent 1.3% decline against the US Dollar. Rising interest rate differentials, particularly the Germany-US 2Y spread, are supporting the Euro, while a decline in risk reversals reveals increased demand for protection against Euro upside.
Extended bullish positioning has left the Euro vulnerable, with the most recent CFTC report indicating an $18.4bn long position. The upcoming release of the July preliminary CPI and recent ECB inflation expectations, with a 1Y forecast of 2.6% and 3Y at 2.4%, are key data points.
Euro/USD is near its 50-day moving average at 1.1570, maintaining a multi-month bullish trend since February. The RSI is below 50, suggesting bearish territory, though it remains near neutral, with expectations for a range between 1.1520 support and 1.1680 resistance.
We are watching the Euro attempt to stabilise in the mid-upper 1.15 range following its recent decline. While rising interest rate differentials offer some support, we must also consider the latest German ZEW Economic Sentiment survey, which shows investor morale has improved to 51.3, its highest since early 2024. This suggests underlying confidence despite the currency’s recent dip.
Given the expected range between 1.1520 support and 1.1680 resistance, we believe selling options premium is an attractive strategy for the coming weeks. An iron condor, perhaps selling the 1.1700 call spread and the 1.1500 put spread for August expiry, could capitalize on this period of consolidation. This approach profits if the EUR/USD stays between our sold strike prices before the options expire.
With the preliminary July CPI figures due shortly, we anticipate a potential spike in volatility. Considering the European Central Bank’s own inflation forecasts are well above their 2% target, any surprise in the data could trigger a sharp market reaction. Traders could position for this by purchasing a short-dated straddle, which would profit from a significant price move in either direction.
We must be wary of the extended bullish positioning, which recent CFTC data shows as an $18.4bn net long. Historically, such crowded trades are susceptible to a rapid unwind, as seen during the sharp Euro drop in the third quarter of 2023. Therefore, purchasing out-of-the-money puts with a strike around 1.1450 could serve as a cost-effective hedge or a speculative bet on a long squeeze.
Conversely, the noted decline in risk reversals indicates a growing demand for call options relative to puts. This tells us that despite the crowded positioning, some traders are protecting against a powerful move higher. We could mirror this sentiment by implementing a bull call spread, perhaps buying the 1.1600 call and selling the 1.1750 call, to capture potential upside while defining our risk.
