Despite US President Donald Trump’s tariff threats to the market, traders are still betting that the euro will strengthen next month.
The so-called risk reversal is a closely watched sentiment indicator. On Monday, investors’ bullish sentiment towards the euro reached its highest point since the end of 2020. Despite concerns that the European economy might be hit hard by heavy taxes and the euro having already achieved its best start to a year since 2016, investors remain optimistic about the euro.
This positive sentiment signals a sea change for the euro, suggesting that markets are betting that the trade war will hurt the US more than Europe and that Europe’s big defense spending could support the economy. Last month, demand for options to profit from a stronger euro surged at the fastest pace in a decade, and euro-dollar options trading volume hit a record high.
Elias Haddad, senior strategist at Brown Brothers Harriman, said: “Germany’s loose fiscal policy and the EU’s military build-up plans have reduced the need for the European Central Bank to cut interest rates by more than currently expected. The possibility of a small upward revision to the ECB’s interest rate expectations is positive for the euro.”
Swap market data indicates that the European Central Bank will cut interest rates twice more this year, each by 25 basis points, with a 42% probability of another rate cut. The market will learn on April 2nd the scope of the US tariffs on the rest of the world.
On Tuesday, The Washington Post reported that the White House has drafted a proposal to impose a tariff of about 20% on at least most of the US imports. The euro fell 0.2% to $1.0791 against the dollar at one point. So far this year, the euro has still risen by more than 4% against the dollar.
The repricing of sentiment is also evident over the longer term. Although one-year risk reversals still suggest the euro will weaken over the next 12 months, the indicator rose in March by the second-largest amount on record, indicating that traders’ views on the euro are rapidly becoming more optimistic.
When the euro’s gains hit a record in March, demand for contracts soared. Three-fifths of the plain vanilla options traded through DTCC were related to the euro’s rise. Demand for more exotic options also surged, pushing the so-called 10-delta volatility spread to its highest level in four years – a sign that traders saw a greater chance of a strong rally rather than a sharp pullback.
Technical analysis:
Gold: The overnight movement of gold prices was basically on the nodes we reminded through the plugin. Firstly, the green demand area helped the price rebound several times, creating a space of 10 dollars. Then, after breaking through the yellow area, the price began to show a V-shaped reversal trend, which is a clear rebound signal after the liquidity sweep. For today, we suggest continuing to pay attention to the momentum breakthrough trend and the liquidity sweep signal. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg.
Nasdaq: Yesterday, we clearly reminded in the article and the plugin that the support level below the price might occur around 19,250. After the price dropped to the lowest point of 19,259, it began to rebound. Today, the market will face the test of the second phase of tariffs. We suggest keeping an eye on the low-buy signal after the liquidity sweep and the momentum break signal at the same time. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg.
Crude oil: The overnight price movement was basically within our expected range. The yellow zone was not broken through, and there was no obvious rebound momentum. For today, we suggest paying attention to the signal of a fresh momentum breakthrough. Meanwhile, the green low-buy limit order can be maintained. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V:Hana-fgfg.
Today’s key financial data and events to focus on:
20:15 US ADP Employment Change for March (thousands)
22:00 US Durable Goods Orders for February (Revised)
US President Trump plans to impose reciprocal tariffs and industry-specific tariffs.
