EUR/USD hovered near 1.1390 on Wednesday, recovering from support in the mid-1.1300s but still failing to regain 1.1400. With the year-to-date low at 1.1324 close by, the pair remained exposed to renewed downside if the US Dollar strengthens after the Federal Reserve decision. The Fed was expected to keep its benchmark rate unchanged, while markets priced a 35% chance of a quarter-point hike later in the day, a backdrop that could keep focus on the prospect of a September move.
In Europe, ECB council member Christodoulos Patsalides said higher Oil prices were adding to inflation risks, while offering no guidance on September policy. Technically, EUR/USD was trading in the lower part of July’s channel within a broader bearish trend, with the RSI below its midline and the MACD slightly above zero. Resistance levels were described at 1.1440, then 1.1480, while support sat at 1.1324, followed by 1.1245 at the 127.2% Fibonacci extension and 1.1210, the late May 2025 low.
Trading Strategies Amid Fed and ECB Uncertainty
We suggest that derivative traders prepare for increased volatility today as the Federal Reserve’s rate decision could break the current tight range. With EUR/USD pinned below 1.1400, the market is pricing in a 35% chance of an unexpected rate hike today, though a hawkish pause remains the baseline. If the Fed signals a firm commitment to a September hike, the US dollar will likely surge, pushing the currency pair past its year-to-date low of 1.1324.
To capitalize on this bearish momentum, we recommend buying out-of-the-money put options with strike prices near 1.1250 expiring in late August. Bear put spreads are also highly attractive right now because they limit premium costs while targeting the key support level down at 1.1210. Implied volatility for EUR/USD options remains relatively low, making long delta-negative strategies cheaper to establish before the Fed announcement.
Positioning, Inflation, and Options Outlook
Our bearish outlook is strongly supported by recent positioning data, with the latest CFTC commitment of traders report showing that speculative short contracts on the Euro have surged by over 15% this month. Furthermore, with Eurozone headline inflation sticky at 2.6% due to Brent crude oil hovering near $85 a barrel, the economic divergence between the US and Europe is widening. Traders should avoid selling puts naked, as any hawkish surprise from the Fed today could trigger a rapid sell-off toward the 1.1245 Fibonacci extension.
For those preferring income-generating strategies, writing out-of-the-money call options above the 1.1480 resistance ceiling offers a high probability of success. We see very little technical momentum to push the pair above July’s high of 1.1440, especially with the Relative Strength Index (RSI) lingering below its midline. Keeping stops tight just above 1.1500 will protect these premium-selling positions if the ECB unexpectedly hints at its own rate hikes in the coming weeks.
