Insights 
VT 
The EUR/USD is maintaining its position near the 1.160 handle, supported by the euro’s liquidity amidst an equity sell-off. G10 currency losses have predominantly impacted high-beta currencies, including AUD and NZD.
The EUR/USD is seen as having potential upside. It is reported to be trading undervalued compared to its short-term fair value, with an undervaluation currently estimated at 0.8%.
Year-End Target For EUR/USD
The year-end target for EUR/USD remains at 1.180. December’s positive seasonality could facilitate a gradual upward movement, although it may not follow a consistent bullish pattern like earlier in the year.
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We see the EUR/USD holding steady around the 1.1600 level, and it appears to be trading at a discount given recent fundamentals. The upside potential feels more significant than the downside, especially after last week’s US Consumer Price Index report for October came in slightly below expectations at 2.8%. This reduces pressure for any near-term hawkish surprises from the Federal Reserve.
Options Strategy Consideration
For those looking to position for a move higher, buying call options with expirations in late December or early January seems like a straightforward strategy. This allows us to capture potential gains if the pair moves toward the 1.1800 year-end target. This approach limits our risk to the premium we pay for the options.
To manage costs, we could consider a bull call spread, such as buying a 1.1650 strike call and selling a 1.1800 strike call. This lowers the upfront cost of the trade, though it does cap our potential profit at that 1.1800 level. Implied volatility has ticked up slightly with the recent equity market nervousness, but it is not at prohibitive levels for such a strategy.
This bullish view is supported by strong seasonal patterns we have observed over the last decade. Historically, December has often been a positive month for EUR/USD as dollar demand tends to soften into the year-end. Looking back, we’ve seen the pair rally in seven of the last ten Decembers, which adds another layer of confidence to the upside case.
