Insights 
VT 
The Euro remains precarious, with EUR/USD showing slight losses, trading at 1.1560, near the 1.1540 support. Eurozone inflation met expectations, easing to 2.1% annually, with core inflation stable at 2.4%. Monthly, consumer prices rose to 0.2% from the previous month’s 0.1%, while the core index went up to 0.3%.
The US Dollar is buoyed by risk aversion and diminished expectations of a Federal Reserve rate cut, following hawkish comments and a trade agreement between the US and China. The European Central Bank maintained its rate, with President Lagarde optimistic about growth despite inflation uncertainties. US Treasury yields have surged more than 30 basis points since Wednesday.
Euro Influences
The EUR/USD faces resistance around 1.1580 and support around 1.1545, with bearish momentum indicating a potential target near the 1.1450 range. The Euro is influenced by economic indicators such as inflation data, GDP, PMIs, and trade balance, with the ECB’s policies playing a key role. The Eurozone’s trade balance, reflecting export-import dynamics, also impacts its strength.
The Euro looks vulnerable against the Dollar, and we see bears targeting the 1.1540 level. This is driven by cooling inflation in the Eurozone and a more aggressive stance from the US Federal Reserve. The fundamental picture suggests this trend may continue in the weeks ahead.
Eurozone inflation data released this week confirms this view, with Eurostat’s flash estimate for October showing headline inflation easing to 2.1%. In contrast, the latest US data from the Bureau of Economic Analysis showed core personal consumption expenditures (PCE) inflation remains persistent at 3.5%. This stark difference in inflation strengthens the case for a weaker Euro.
The European Central Bank appears comfortable holding its rate at 2.0%, but the Federal Reserve is signaling a higher-for-longer policy. After this week’s Fed meeting, the CME FedWatch Tool shows the market has significantly reduced bets for a December rate cut, with the probability falling to 64.8%. This divergence between central banks is the primary driver of currency markets right now.
Impact on US Treasury Yields and Derivatives
This policy difference is pushing US Treasury yields higher, with the 10-year note hitting 4.10%, attracting capital to the US dollar. We saw a similar dynamic play out between 2014 and 2015 when ECB easing and Fed tightening caused the EUR/USD to fall by over 20%. The current environment feels reminiscent of that period.
For derivative traders, this environment suggests bearish strategies on the EUR/USD pair in the coming weeks. Buying put options with strike prices below the 1.1540 support level, such as at 1.1500 or 1.1450, could be a direct way to profit from a continued decline. These options would capture value as the pair breaks through key technical floors.
Alternatively, selling call spreads with the short leg around the 1.1580 resistance level would be a more conservative strategy. This approach profits if the pair stays below this key resistance, benefiting from both a drop in price and the passage of time. It allows traders to capitalize on the pair’s inability to sustain any upward momentum.
The technical charts support this negative outlook, as the pair has broken its monthly triangle pattern and momentum indicators are negative. Any short-term bounces towards the 1.1580 resistance area could be seen as opportunities to initiate or add to these bearish positions. The path of least resistance appears to be to the downside.
