Insights 
VT 
The EUR/USD exchange rate is expected to rise above $1.2000 by the end of the year. This forecast was made before the vote of no confidence in France’s Prime Minister.
Euro Strength And Monetary Policies
Euro strength is attributed to the differing monetary policies of the Federal Reserve and the European Central Bank. The Federal Reserve is predicted to resume cutting rates on 17 September.
In contrast, the ECB is showing reluctance towards further rate cuts, indicating it will likely maintain current rates. This divergence in approaches supports the euro’s upward trend.
We anticipate the EUR/USD will strengthen towards the $1.2000 mark by the end of this year. This view is based on the growing difference in monetary policy between the two major central banks. The Federal Reserve is widely expected to cut interest rates at its meeting next week on September 17.
This contrasts with the European Central Bank, which appears hesitant to cut rates further. Recent data supports this, as the latest August Eurozone HICP inflation reading came in at a stubborn 2.7%, while the U.S. Core PCE for July cooled to 2.6%. This divergence in inflation and central bank response is the primary driver for our outlook.
Traders Positioning And Strategies
For traders, this suggests positioning for euro strength in the coming weeks. We are looking at buying EUR/USD call options with strike prices around $1.2000 and expirations in the fourth quarter. This provides a direct and leveraged way to profit from the expected upward move.
We acknowledge the recent political uncertainty in France, but we do not see it derailing this trend. We saw a similar situation back in the summer of 2024 when markets quickly looked past the French legislative elections, focusing instead on the larger macroeconomic picture. Therefore, the current implied volatility may offer a good entry point for bullish positions.
A more conservative strategy we are considering is the bull call spread. This involves buying a call option at a lower strike, like $1.1900, while selling another call at a higher strike, such as $1.2100, for a later expiration date. This approach lowers the initial cost of the trade while still benefiting from a steady rise in the currency pair.
Another way to express this view is by selling out-of-the-money put options. Given the ECB’s firm stance, we believe there is a solid floor for the euro. Selling puts with a strike price around $1.1750 allows us to collect premium on the belief that any dips below that level are unlikely to be sustained.
