EUR/USD rose 0.2% ahead of Thursday’s North American session, extending a sentiment-led rebound. The move comes even as expectations for ECB tightening have eased.
Markets now price June ECB tightening at 19 bpts, with September just shy of 50 bpts. German factory orders strengthened and Eurozone retail sales held up, but wider risk mood remains the main driver.
Bullish Tone And Key Levels
On the chart, EUR/USD keeps a bullish tone, with support in the mid-1.16s. The next upside level is 1.1825, the 61.8% Fibonacci mark.
A break above 1.1825 could open the way to a full retracement and a move back above 1.20. In the near term, trading is expected to stay range-bound between 1.1720 and 1.1820.
The article notes it was produced using an AI tool and checked by an editor.
Looking back at our perspective from mid-2025, we saw a sentiment-led rally pushing for 1.1825. That move was driven by a temporary improvement in the market’s mood, even as our own expectations for ECB tightening were softening. The rally ultimately stalled near that key level, reminding us how sentiment-driven moves can lack fundamental support.
Policy Divergence And Strategy
Today, the environment is dominated not by sentiment but by a clear policy divergence that has developed over the past year. With Eurozone inflation having cooled to a recent 1.9%, the European Central Bank is now openly discussing potential rate cuts by the third quarter. In sharp contrast, a surprisingly resilient US labor market and sticky core inflation, last reported at 3.1%, means the Federal Reserve is likely to hold rates steady for longer.
This fundamental backdrop suggests we should favor strategies that benefit from a weaker Euro. Buying EUR/USD put options with strike prices below the current 1.1200 level offers a defined-risk way to position for a drop toward the 1.1000 psychological support. This is particularly relevant as the interest rate differential between the US and the Eurozone is widening in favor of the dollar.
Given that implied volatility in EUR/USD options is moderate, selling out-of-the-money call spreads could also be an effective strategy for the coming weeks. Establishing a ceiling around the 1.1350 resistance level allows us to collect premium while expressing a bearish to neutral view on the pair. We see this as a prudent approach to capitalize on the expected range-bound action ahead of the next central bank meetings.
