EUR/USD Outlook
EUR/USD has rebounded as the US Dollar’s recovery wanes. Anticipation grows before the European Central Bank’s (ECB) interest rate decision, with predictions of holding rates steady, and focus pivots to Lagarde’s future policy direction.
Currently, EUR/USD trades around 1.1750, lifting from a previous low near 1.1703. The technical outlook is positive, as EUR/USD clings above its moving averages post an inverse head and shoulders breakout.
Markets will be attentive to Lagarde’s speech for 2026 policy insights following Thursday’s ECB decision at 13:15 GMT. Despite expectations of unchanged rates, potential guidance could impact the Euro’s trajectory.
Immediate resistance appears at 1.1804, with the September peak at 1.1918 in sight if momentum prevails. Support remains around 1.1700, reinforced by the 100-day Simple Moving Average near 1.1650.
Momentum indicators stay optimistic, with the RSI just below the 70 mark and MACD above zero, suggesting continued bullish momentum. The ECB’s policy statement aims to meet inflation targets, influencing Euro volatility and short-term trends, with the next release scheduled for December 2025.
Trading Implications
We see the market positioned for a move in EUR/USD, with the technical outlook remaining positive following the recent inverse head and shoulders breakout. The pair is holding firmly above key support levels, suggesting underlying strength is intact. However, the main event is today’s European Central Bank (ECB) decision, which will dictate the next significant trend.
The key for us is the expected jump in volatility surrounding President Lagarde’s press conference. One-week implied volatility for EUR/USD options has already surged to over 9%, a sharp rise from the sub-7% levels seen just two weeks ago. This indicates traders are bracing for a decisive move, making strategies like long straddles attractive to play the magnitude of the price swing, not just the direction.
For traders leaning into the bullish momentum, call options provide a way to target upside with controlled risk. We are looking at strikes above the current 1.1750 level, specifically targeting a potential break of the 1.1804 resistance. A move toward the year-to-date high near 1.1918 remains plausible if Lagarde delivers a hawkish tone on the 2026 outlook.
On the other hand, we cannot ignore the risk of a dovish surprise, especially as recent data showed Eurozone Harmonised Index of Consumer Prices (HICP) inflation cooled to 2.1%, getting closer to the ECB’s target. This could prompt a more cautious stance, making protective puts with strike prices near the 1.1700 support a prudent hedge. A break below this level could quickly bring the 100-day moving average at 1.1650 into play.
A more measured approach would be to use credit or debit spreads to manage costs and define risk. Given the bullish technical setup, a bull call spread, such as buying a 1.1750 call and selling a 1.1850 call, could offer a favorable risk-reward. This strategy would profit from a moderate rise in EUR/USD while significantly lowering the initial cost compared to an outright long call position.
