EUR/USD erased earlier gains and was flat near 1.1575, after rebounding from two-month lows around 1.1500. Price action has struggled to extend beyond the lower boundary of the prior three weeks’ range, with the 1.1580–1.1590 zone acting as a cap. Market tone stayed moderately constructive on reports of progress in the US-Iran peace process; Donald Trump said a final deal could be signed in coming days, while Tehran said a decision had not yet been taken.
The ECB raised interest rates by 0.25% on Thursday, its first increase in nearly three years, and updated inflation projections. In the US, PPI data were mixed: headline PPI rose to 6.5% year on year, the fastest pace in more than three years, while core PPI held at 4.9%. Technically, EUR/USD traded at 1.1574, with RSI in the mid-50s and MACD marginally positive; a break above 1.1580–1.1590 would target 1.1645 and 1.1685. Support is seen at 1.1555, then 1.1500, with a further downside reference near 1.1445.
Euro’s Struggles and Policy Backdrop
We are seeing the Euro give back its earlier gains against the US Dollar, trading around 1.0850. The EUR/USD pair is struggling to find any real momentum above the 1.0900 level. This area acted as a key support level earlier in the year, and it is now proving to be a formidable resistance.
A generally positive risk sentiment is keeping the Euro from falling further, buoyed by progress in trade negotiations between the EU and the Mercosur bloc. This news helps provide a floor for the currency, but it is not enough to fuel a significant breakout. The market seems to be weighing this against other, more powerful economic factors.
We believe the European Central Bank has likely concluded its tightening cycle for now, following the latest inflation data. The Eurozone CPI for May came in at 2.1%, which is very close to the ECB’s target. This suggests there is little appetite for further rate hikes, putting a cap on the Euro’s potential upside.
US Data, Dollar Strength, and Trading Strategy
In the United States, the economic picture looks quite different, supporting a stronger dollar. The most recent jobs report from May showed a robust gain of 250,000 non-farm payrolls, significantly beating expectations. This strong labor market data gives the Federal Reserve more reason to maintain its hawkish stance on interest rates.
Given this backdrop, we see an opportunity in selling premium above the market. We are considering short-term bear call spreads with the short strike placed above the 1.0950 level. This strategy allows us to profit if the pair remains below this key resistance, which we expect in the coming weeks.
Pullbacks have been consistently finding buyers around the 1.0780 mark, keeping the yearly lows at a safe distance for now. However, should we see a decisive break below this support, we would look to buy put options to capitalize on a potential move lower. This provides a way to hedge our positions or speculate on a new downward trend.
