EUR/USD fell below 1.09, according to Danske Bank’s FX analyst Jens Nærvig Pedersen. Despite the dovish stance from the FOMC and comments from President Trump about rate cuts, the pair has declined as the USD strengthened across G10 currencies.
Lack of clear catalysts has contributed to this trend, with jobless claims showing stability and the Philadelphia Fed business outlook slightly exceeding expectations. The one-week risk reversals have dropped to 42bp in favour of puts over calls, indicating bearish sentiment not seen since early March.
Euro Struggles Against Stronger Dollar
Expectations suggest EUR/USD may consolidate within the 1.08-1.09 range in the near term.
Pedersen’s view highlights how the dollar has gained broad strength, despite what some might have expected from the recent Fed meeting and remarks from the former president. Normally, when a central bank leans towards cutting rates, its currency weakens. Yet, that’s not what happened here. The greenback has pushed higher, even with these expectations hanging over the market.
We see jobless claims steady, meaning that unemployment isn’t giving traders any new direction. The Philadelphia Fed’s business outlook even surprised slightly to the upside, which doesn’t add much argument to the case for a weaker dollar. But the most telling move has been in risk reversals. The drop in one-week risk reversals down to 42 basis points, showing stronger demand for puts over calls, tells us that sentiment towards the euro continues to tilt negative. This level of bearish positioning hasn’t been seen since early March, suggesting traders are uneasy about the euro’s ability to regain ground.
Traders Face Limited Opportunities
For those trading derivatives, this backdrop presents a challenge. If EUR/USD remains between 1.08 and 1.09, there is little room for directional plays unless the pair breaks out. Patience will be required if waiting for clear momentum outside of this zone. If positioning remains tilted towards downside protection, traders should keep an eye on whether this bearish bias continues to build or if short positions start unwinding.
Without a fresh reason to shift the narrative, this range could persist. If the dollar stays firm across G10, downside risks stay in play. However, if upcoming data softens or rate cut expectations become more aggressive, there could be a shift in sentiment.
