The Euro is currently trading defensively during the Wednesday North American session, despite stronger than expected data from the euro area. Eurozone confidence figures and the Q2 GDP print provided modest surprises but failed to uplift the Euro significantly.
The Euro’s trend remains bearish following a notable erosion in the option market’s premium for protection against EUR upside. CFTC data indicates a bullish position among speculators, though fundamentals still support the Euro as the central bank policy outlook suggests a narrowing in German-US yield spreads.
The Euro breached the 50-day moving average trend support level of 1.0932 on Tuesday, indicating a bearish trend. The RSI is below 50 and approaching 40, pointing towards further bearishness; support is anticipated in the mid-1.14s with near-term ranges from 1.15 support to 1.16 resistance.
The EUR/USD pair holds near 1.1550 after strong German and Eurozone GDP data, despite a weaker US Dollar. The US is expected to show Q2 GDP growth of 2.5% following a 0.5% contraction in Q1, with focus on the Federal Reserve’s policy decisions amidst a steady labour market and healthy consumption.
We are seeing the Euro struggle to gain traction, holding near 1.1550 even with positive economic data out of Europe today. This failure to rally on good news is a significant sign of underlying weakness. The market seems to be pricing in other factors, particularly the relative strength of the US economy.
Given the bearish technical signals, like the RSI dropping below 50, we believe derivative plays that benefit from a drop or stagnation in the Euro are prudent. Recent data from the Cboe shows the EuroCurrency Volatility Index (EVZ) has crept up to 7.8, its highest level since the May 2025 inflation reports, suggesting traders are buying protection against a potential decline. This makes strategies like buying August puts or establishing modest bear put spreads around the 1.15 strike price look attractive.
However, we must also consider the conflicting signals from the fundamentals, as the spread between German and US government bond yields has been narrowing. Earlier this month, we saw the German 10-year yield rise while US yields held steady, a pattern that historically lends support to the Euro. This suggests that aggressively betting on a major collapse might be premature, and selling out-of-the-money calls above the 1.16 resistance could be a way to collect premium.
All eyes are now turning to the advance estimate for US Q2 GDP growth, which is set to be released tomorrow on July 31st. The consensus is for a strong 2.5% expansion, a stark recovery from the contraction we saw back in the first quarter of 2025. A stronger-than-expected number would almost certainly push the EUR/USD pair lower, potentially breaking the 1.15 support level.
With these opposing forces at play, we expect the Euro to remain caught between 1.15 support and 1.16 resistance in the near term. This type of range-bound environment, reminiscent of what we saw during parts of 2024, is often ideal for strategies that profit from low volatility, such as selling an iron condor. This would allow us to benefit as long as the Euro does not make a large move in either direction before the options expire.
