Insights 
VT 
The EUR/USD pair is trading just above its monthly low of 1.1540, with the next support level identified at 1.1500. The European Central Bank (ECB) recently kept the policy rate steady at 2.00% for the third meeting in a row, stating that further easing is unlikely.
The ECB acknowledged economic growth continuing despite global challenges, with President Christine Lagarde reaffirming the current monetary policy settings. Current market swaps suggest a 50% chance of a 25 basis points cut in the next year, although stable Eurozone inflation and improving PMI data suggest an extended pause.
Eurozone Inflation Insights
Eurozone inflation remains close to the ECB’s target, with preliminary October CPI at 2.1% year-on-year, matching forecasts. Core CPI held constant at 2.4% year-on-year for the second consecutive month, while services CPI increased to 3.4% year-on-year, its highest in six months.
The FXStreet Insights Team collates expertise from notable analysts, providing selected observations and insights from various sources. Their content includes analyses by both external and in-house experts.
The European Central Bank appears committed to its 2.00% policy rate, creating a solid floor for the EUR/USD exchange rate. With President Lagarde signaling a high bar for any rate cuts, the support level around 1.1500 looks increasingly firm. This stability suggests that betting on a sudden, sharp decline in the Euro is a risky proposition for the coming weeks.
On the other side of the pair, recent data shows US Core CPI for October came in at 3.5%, slightly above forecasts and reinforcing the Federal Reserve’s less dovish stance. This acts as a ceiling for the Euro’s potential upside against the dollar. The conflicting pressures from a stable ECB and a firm Fed are what will likely keep EUR/USD trading within a tight range.
Impact on Derivative Trading
For derivative traders, this environment of low expected movement is significant, as one-month implied volatility for EUR/USD has compressed to near 5.5%, a multi-year low. Such low volatility makes strategies that profit from sideways movement, like selling straddles or iron condors, particularly attractive. These positions benefit from the pair remaining stable, which aligns with the current central bank outlooks.
The ECB’s confidence is backed by the ongoing recovery in economic activity, with the latest Eurozone manufacturing PMIs holding above the 51.0 growth marker. We have to remember this is a significant improvement from the sub-50 contractionary readings that plagued the bloc back in late 2023. As long as this slow but steady economic healing continues, the market’s current pricing of a 50% chance for a rate cut in the next year seems too high.
