The Euro (EUR) reached a three-year high above 1.14 recently, testing the upper 1.08s on Monday. This surge contrasts with widening EZ/US spreads, which typically would negatively impact the EUR.
The movement in bond yields indicates a lack of confidence in US Treasuries, driving investment towards German Bunds and the EUR. Although the EUR has retraced from its high, this is viewed as a consolidation rather than a downturn.
The upward trend in the EUR remains strong across various time frames. A range of 1.17 to 1.22 is possible in the medium term, with minor dips seen as buying opportunities.
We’ve seen the Euro push through resistance levels that haven’t been tested in three years, breaching the psychological 1.14 mark not long ago. That kind of move doesn’t happen in a vacuum. On Monday, it bounced off the upper end of the 1.08s, which feels sharp when placed against the backdrop of widening yield spreads between the eurozone and the US – spreads that would usually weaken the Euro, not bolster it.
But there’s a telling divergence in fixed income. US Treasuries, often the classic safe haven, seem to be losing their shine in favour of their European counterparts. Bund yields, reacting to firm demand, suggest increased capital flow into European assets. Investors look like they’re rotating, rebalancing exposure, leaning harder into euro-denominated assets. That has made EUR movements more bullish than one would expect, particularly given the rate differentials.
When the Euro pulled back slightly after the recent highs, it wasn’t a reversal. It felt more like the market pausing for breath. Volumes suggest the buying hasn’t disappeared; it’s more that traders are recalibrating, waiting for confirmation before stepping back in. We are treating this cooling-off as digestion rather than rejection. Value is being recalculated at higher levels.
The technical view supports this. Trend strength has held across daily, weekly, and monthly charts. Momentum indicators haven’t rolled over, and the bull slope remains intact. Any drop towards the lower 1.09s or even shallow 1.08s should be seen in that light – not weakness, but rather opportunity for re-entry.
Targets have moved. Where traders would once have taken profits near 1.15, they’re now eyeing levels between 1.17 and 1.22. Volatility has reduced only slightly, which means there’s still room to move quickly if new catalysts emerge. However, forward-looking action seems to be in favour of continued strength.
In terms of volatility structures, short-dated EUR calls are attracting interest. Skew has flattened at higher strikes, implying less defensive positioning. Risk reversals, too, lean bullish, though not in an overheated way. That implies traders are positioning for a continued rise but aren’t chasing it blindly.
The approach should be disciplined. Use the pullbacks to layer into existing long positions rather than entering stretched rallies. Keep a close eye on liquidity zones—the areas between 1.0850 and 1.0920 have acted as magnets historically during consolidations.
It’s worth noting that positioning in the options space has not become crowded, at least not yet. That offers some room to manoeuvre before saturation sets in. The cost of carry remains manageable, especially when structured through calendar spreads that account for potential stagnation during upcoming central bank meetings.
We’ve also noted a build-up in contracts around the 1.16 and 1.18 levels. These may act as near-term barriers or as triggers if breached cleanly. Thus, when watching price action approaching those levels, be alert for short-term reversals as well as aggressive breakouts.
We expect volume to pick up again around month-end as portfolios realign. Until then, the tone remains constructive, with most participants using dips to initiate or add to bullish structures, particularly in vanilla options and simple outright plays via futures.
