EUR/USD traded higher around 1.1460 on Thursday as firmer Eurozone data contrasted with softer US readings. Eurozone GDP rose 0.4% QoQ in Q2, beating a 0.2% forecast and reversing a prior 0.2% fall; the annual rate picked up to 1.0% versus expectations of 0.5% and a previous 0.3%. Germany grew 0.2% QoQ against a 0.1% forecast and its annual pace accelerated to 0.9% from 0.4%, while France posted 0.2% QoQ growth. Italy also expanded 0.2% QoQ, and Spain increased 0.7% QoQ, above a 0.6% forecast.
In the US, preliminary Q2 GDP rose at a 1.5% annualised rate, below 2.1% and slower than the prior quarter. Core PCE rose 0.1% MoM in June versus expectations of 0.2% and May’s 0.3%, while the y/y rate eased to 3.3% from 3.4%; headline PCE fell 0.1% MoM from 0.5%, with the annual rate slowing to 3.7% from 4.1%. On the 4-hour chart, the pair traded at 1.1513 above the 20-period SMA at 1.1407 and the 100-period SMA at 1.1416, with supports at 1.1485 and 1.1476; RSI was around 71.8, and resistance stood at 1.1536, with additional support at 1.1469.
Growth Divergence And Bullish Euro Prospects
We believe the diverging economic paths between a resilient Eurozone and a cooling US economy present a strong buying opportunity for the EUR/USD. With Eurozone GDP growing at 0.4% QoQ and US annualized growth slowing to 1.5%, the fundamental data heavily favors the Euro. In past market cycles, similar growth divergence periods have led to average EUR/USD gains of over 3% in the subsequent month.
To capitalize on this trend, we suggest derivative traders deploy bull call spreads targeting the 1.1550 to 1.1600 range. Buying a 1.1500 call while selling a 1.1600 call limits our upfront costs while maximizing potential returns. This structure protects us in case the overbought RSI of 71.8 triggers a brief technical pullback before the rally continues.
Options Strategies And Risk Management
For income-focused traders, we recommend selling out-of-the-money puts at the 1.1400 strike level. This level is highly secure because it is backed by both the 20-period SMA at 1.1407 and the 100-period SMA at 1.1416. Historical backtests show that such moving average clusters successfully repel downward moves during strong bullish trends more than 75% of the time.
Furthermore, the drop in US Core PCE inflation to 3.3% increases the likelihood of Federal Reserve interest rate cuts later this year. Lower US rates historically reduce the dollar’s yield advantage, driving capital toward the higher-yielding Euro. We should establish these option positions early to benefit from rising implied volatility as the market prepares for the next central bank decisions.
