EUR/USD shows modest gains, trading around 1.1735 after rebounding from 1.1685. Despite a downward revision of Eurozone Services PMI to 51.3 for September, the Euro is supported as risk appetite affects the US Dollar. Meanwhile, European services data presented mixed results, with expansions noted in Italy and Spain, slight underperformance in Germany, and contraction in France.
US economic data paints a mixed picture; a decline in job cuts contrasts with reduced hiring plans, hitting their lowest since 2009. The absence of the US Nonfarm Payrolls due to a government shutdown shifts focus to services PMI releases and central banker remarks. The S&P Global Services PMI is forecasted to show a decline to 53.9 from 54.5.
Technical Analysis
In technical analysis, EUR/USD remains within a sideways range below 1.1760. Resistance is at previous highs near 1.1760, while support lies at recent lows of 1.1685 and further at 1.1645-1.1655. Immediate movements may be influenced by US services PMI data, expected to indicate a modest activity slowdown. The ISM Services PMI is anticipated to fall to 51.7 from 52, with attention on sub-indices related to orders and employment.
With EUR/USD stuck in a tight range between 1.1700 and 1.1760, we see an opportunity in the lack of direction. The US government shutdown has postponed key jobs data, creating uncertainty and suppressing volatility for now. This environment is ideal for selling options to collect premium, such as a short strangle, as long as the pair remains range-bound.
The immediate test for this strategy will be today’s US ISM Services PMI release. A number coming in above the 51.7 consensus would support the hawkish Fed view and could push the pair toward the 1.1685 support level. Conversely, a weak reading would fuel concerns about a slowing economy and could see us challenge the 1.1760 resistance.
Market Volatility and Strategy
Looking back, the economic resilience shown in the Eurozone, with the services PMI at 51.3, mirrors the steady expansion we saw throughout much of 2024. However, the unexpected rise in Eurozone unemployment to 6.3% last month suggests underlying fragility. This mixed European data isn’t strong enough to drive a breakout on its own, reinforcing the range-bound thesis for now.
The main tension in the market is the Fed’s stance versus the weakening US labor market, highlighted by hiring plans falling to their lowest point since the 2009 financial crisis. We are seeing a disconnect where Fed officials talk tough on rates, but the data suggests they may have to ease policy sooner than they expect. The CME FedWatch tool shows markets are pricing in a 35% chance of a rate cut by December, a probability that will swing wildly on today’s services data.
We must prepare for a significant shift in volatility in the coming weeks. We saw a similar situation during the US government shutdown of 2018-2019, where markets traded sideways on a lack of data before erupting once a resolution was found and delayed reports were released. This historical precedent suggests the current low-volatility environment is temporary and a sharp move is building.
Therefore, while selling premium is the strategy for today, we should be ready to pivot. As the shutdown continues, we should consider buying volatility through long straddles or strangles. The longer the Nonfarm Payrolls data is delayed, the larger the market’s eventual reaction will be, making long volatility positions increasingly attractive.
