Insights 
VT 
The Euro’s Resistance Level
The Euro (EUR) may continue to climb, but it needs to surpass the 1.1720 resistance level for further advancement towards 1.1760. UOB Group’s analysts note that while momentum is positive, a firm close above 1.1720 is essential for sustained progress.
Recently, EUR reached a high of 1.1694 and closed at 1.1687, demonstrating resilience beyond expectations. The upward momentum suggests there is potential for more gains, though clarity on breaking past 1.1720 is needed. Maintaining above 1.1650, with minor support at 1.1675, is important for continued momentum.
Over the next few weeks, the EUR weakness from the previous week has stabilized. The currency is anticipated to trade between 1.1575 and 1.1720. The quick movement towards 1.1720 came as EUR reached 1.1694, closing higher for the third consecutive day. The prospect of surpassing 1.1720 remains as long as EUR holds above the strong support level at 1.1625.
Given the building upward momentum, we believe traders should consider strategies that profit from a rise in the EUR/USD. Buying call options with a strike price at or just above the current level could be an effective way to participate in a potential breakout. This approach offers the benefit of a defined risk, limited to the premium paid for the option.
ECB’s Influence And Inflation
This bullish outlook is supported by recent commentary from European Central Bank officials, who continue to signal that interest rates will remain elevated for an extended period to ensure inflation returns to target. We’ve seen this stance provide a floor for the Euro, even as headline inflation figures have moderated, with the latest September report showing a dip to 2.9%. The market is interpreting the bank’s resolve as a source of underlying strength for the currency.
For a more structured approach, we see value in using a bull call spread, which could involve buying a call option with a 1.1700 strike and simultaneously selling a call option with a 1.1760 strike. This strategy lowers the upfront cost of the trade while targeting the specific range we anticipate for the coming weeks. It is particularly well-suited for a scenario of a gradual but capped price increase.
On the other side of the pair, we are watching US Treasury yields closely, which have recently climbed to multi-year highs near 4.8%, reminiscent of the spike we saw back in late 2023. Any sign that these yields are peaking could remove a major pillar of support for the US dollar. A pullback in yields would likely provide the catalyst for EUR/USD to decisively break through the 1.1720 resistance.
The 1.1625 level serves as a crucial line for risk management in this upward-trending view. A clean break below this ‘strong support’ would signal that the bullish momentum has faded, invalidating the current thesis. At that point, traders should consider closing bullish positions or even initiating protective put options to hedge against a deeper decline.
