Scotiabank analysts warn that options markets are pricing greater protection against Euro exchange rate weakness, while ING sees scope for EUR/USD to revisit 1.15 after the Fed.

The Euro to Dollar (EUR/USD) exchange rate traded around 1.1390 on Wednesday, holding within an unusually narrow range as markets waited for the Federal Reserve’s policy decision.

EUR/USD was marginally higher on the day after closing at 1.1386 on Tuesday. The pair has spent most of the past week between 1.1350 and 1.1420, with July’s broader range capped by a high near 1.1481 and a low around 1.1354.

Scotiabank described the Euro as “unchanged vs. the USD” as it consolidated within “an incredibly tight range in the mid/upper-1.13s”.

That calm in spot trading is not being matched in the options market.

Scotiabank flagged a “somewhat worrisome development”, noting that risk reversals were “pushing deeper into negative territory” and approaching their late-June lows.

The move indicates “a growing premium for protection against EUR weakness”, suggesting investors are paying more to hedge against a decline even though the spot rate itself remains stable.

The bank linked that deterioration to the latest positioning data, which showed a weakening speculative backdrop for the Euro. In other words, the surface looks quiet, but traders underneath it are becoming more defensive.

Fundamental support has not disappeared. Scotiabank said ECB rate expectations were steady after their recent pullback, “delivering fundamental support via yield spreads”.

German import prices also showed tentative evidence that the energy-driven surge may be reaching a peak after lifting the annual rate above 6%. The release was not large enough to shift the currency, leaving US developments as the dominant near-term driver.

The latest two-day chart above shows EUR/USD briefly climbing from below 1.1380 to around 1.1404 before giving back most of the move.

The pair then settled into an extremely compressed range, repeatedly finding buyers around 1.1383–1.1386 but struggling to maintain advances above 1.1395.

ING takes a more constructive view of what may follow the Fed decision.

The bank argues that precautionary positioning for a surprise US rate increase has helped keep the Dollar supported, but that resilience “will be tested heavily” if the Fed leaves rates unchanged as expected.

Markets were pricing roughly seven basis points of tightening, equivalent to around a 25–30% probability of a hike. A hold should therefore trigger some correction in short-dated US rates and allow investors to unwind defensive Dollar positions.

ING said a Fed hold could allow the Dollar “to reconnect with the signal from lower oil prices”, adding that “unless Fed Chair Kevin Warsh surprises with a hawkish spin, or we see more than two dissenters, we think the dollar will come under pressure today”.

For EUR/USD, that creates a potential route higher, although ING is not calling for an immediate breakout.

The bank said there was “a good chance the pair bottomed out last week” if markets retain a broadly constructive view on Middle East de-escalation.

A sustained move above 1.15 still requires “dovish Fed repricing” and a stabilisation in risk sentiment. Weakness in technology and semiconductor shares may cap the Euro even if the Dollar softens.

Near-Term EUR/USD Forecast: Scotiabank Watches 1.1350–1.1450 as ING Eyes a Return Towards 1.15

Scotiabank’s technical view remains “bearish/neutral”.

The relative strength index is showing “signs of a tentative recovery”, but remains below 50 and therefore still carries a bearish bias. The bank places near-term movement between 1.1350 and 1.1450, with the wider June range bounded by support in the low 1.13s and resistance near 1.1480.

ING’s immediate target sits inside that same range. As a baseline response to a modestly dovish Fed surprise, it expects EUR/USD to return to 1.1400–1.1450 over the coming days.

The contrast between the two banks is useful. Scotiabank sees defensive positioning and options demand warning that the Euro remains vulnerable; ING thinks much of the Dollar’s pre-Fed support may unwind once the decision is out.

A break above 1.1450 would strengthen ING’s argument that last week marked the low and bring 1.1480–1.1500 back into focus. A move beneath 1.1350 would validate the caution showing up in options markets and expose the lower part of the June range.

The spot market is quiet. The hedging market is not. Wednesday’s Fed decision should reveal which one has read the risk more accurately.