The Euro stands strong near a five-week high against the US Dollar at 1.1680, despite stagnant Eurozone Retail Sales, which stalled instead of the predicted 0.1% growth. The weak US Dollar supports the Euro, amidst expectations of a 25 basis points cut by the Federal Reserve in their forthcoming meeting.
Eurozone Retail Sales experienced no growth in October but registered a year-on-year rise of 1.5%, surpassing the expected 1.4% and the September 1.0% increase. The Euro gained support from solid HCOB Services PMI results, indicating robust service sector performance.
US Economic Concerns
Conversely, US economic data revealed a slight drop in the job market, adding to the sentiment for potential Federal Reserve rate cuts. The ADP Employment Change report indicated an unexpected 32,000 job decline, amplifying concerns about the US labour market.
Weekly US Jobless Claims are set for release, with a forecast increase to 220,000, up from 216,000. Thursday’s Eurozone data chimed with positive market sentiment, as services PMI readings for Germany and France surpassed initial estimates.
Despite market movements, EUR/USD faces resistance at the 1.1675 area, with technical analysis indicating potential further gains towards recent highs. The Euro’s outlook is underpinned by policy divergence between the Fed and ECB, where expectations suggest differing paths ahead.
We see a clear divergence in central bank policy, with the market now pricing in an over 90% chance of a Federal Reserve rate cut next week. The European Central Bank, however, is expected to hold its deposit rate steady at 4.00%, a level maintained for over two years since late 2023. This fundamental setup strongly favors a long Euro position against the US Dollar.
Opportunities And Risks
Given this outlook, we should consider buying EUR/USD call options with strike prices above the current 1.1680 resistance. This allows us to profit from a move towards the 1.1730 or higher targets while limiting our downside risk. The key event to watch is Friday’s Personal Consumption Expenditures (PCE) data, which will be the final piece of the puzzle for the Fed.
The expected rise in today’s Jobless Claims to 220,000 continues a trend of labor market softening we’ve observed throughout 2025. We remember claims were consistently below 215,000 during the second half of 2024, so this persistent rise supports the case for Fed easing. A number significantly below consensus today could cause a temporary spike in the dollar, but the broader weakening trend appears set.
On the other side of the trade, the Euro’s strength is supported by solid economic data, like the recent upward revision to the HCOB Services PMI. When we recall the recession fears that were prevalent back in 2023, the current resilience in the Eurozone economy gives the ECB little reason to consider rate cuts. President Lagarde’s recent positive comments confirm this hawkish stance, reinforcing the policy divergence.
Volatility will likely increase around the Jobless Claims release today and especially after Friday’s PCE report. Using options strategies like bull call spreads can be an effective way to position for upside while managing costs and the risk of a sharp reversal. This approach allows us to stay in the trade through the anticipated Fed and ECB meetings next week with a defined risk profile.
