Insights 
VT 
The Euro holds steady against the US Dollar as traders anticipate discussions from the Federal Reserve (Fed) and the European Central Bank (ECB). The Fed is largely anticipated to announce a 25-basis-point rate cut, whereas the ECB is expected to maintain current rates. Technical indicators suggest the Euro is facing resistance, confined below clustered moving averages.
Currently, EUR/USD is trading around 1.1639 during US hours, with the US Dollar Index at approximately 98.88. Traders are cautious, anticipating guidance from both central banks. The Fed’s meeting is expected to announce a rate cut, reinforced by US inflation data falling short of expectations. The CME FedWatch Tool shows a 96.7% likelihood of a rate decrease, due to subdued inflation and labour market signals.
European Central Bank Stance
Conversely, the ECB is forecasted to keep its rate unchanged at 2.00%, as they gauge Eurozone business and inflation signs. Inflation in the Eurozone aligns with the ECB’s 2% target, suggesting stability. Technically, EUR/USD is in a descending pattern below moving averages between 1.1650 and 1.1690. Support resides near 1.1600 and 1.1550, with the RSI at 47 indicating minimal upward momentum.
With a Federal Reserve rate cut almost fully priced in by the market, the initial move may be muted. The real opportunity for traders will come from the Fed’s forward guidance on future policy. We will be listening for any hint that this 25-basis-point cut is the last one for the foreseeable future.
This high level of uncertainty makes trading volatility an attractive option. Using strategies like a straddle, which involves buying both a call and a put option, could profit from a large price swing regardless of the direction. We’ve seen the Cboe’s EuroCurrency Volatility Index (EVZ) rise to 8.5 in recent days, its highest level in three months, signaling that the market is bracing for a significant move.
Potential Market Reactions
There is a chance the Fed delivers a “hawkish cut,” where they lower rates but signal a firm pause, pointing to persistent wage inflation which recent data showed at 4.1% year-over-year. This could cause the US dollar to rally unexpectedly, pushing EUR/USD below its 1.1600 support. We saw a similar situation back in the summer of 2023, when the market reacted more to the Fed’s statement than to the widely expected rate hike itself.
Meanwhile, the European Central Bank is likely to hold rates steady at 2.00%, providing a floor for the Euro. This reinforces the technical picture, where strong resistance is clustered up to 1.1690. For traders who believe the pair will remain range-bound, selling out-of-the-money call options above this resistance could be a viable strategy to collect premium.
