The US dollar may strengthen due to improved employment data, leading options traders to turn bearish on the Euro

According to the latest information from the Wise Finance APP, options traders have shifted to a bearish view on the Euro, as the upward momentum that pushed the Euro to a one-year high seems to be at risk of losing steam. It is reported that the one-month risk reversal indicator for the Euro against the US Dollar has dropped below zero, indicating an increasing premium to guard against Euro depreciation.

Kristoffer Kjaer Lumholt, the foreign exchange research director at Danske Bank, stated: "The decline in the Euro risk reversal indicator against the US Dollar suggests that the market is becoming increasingly cautious about whether the Euro's upward trend can continue." He mentioned that any further rise in the Euro would be a good selling opportunity.

The Euro's rebound momentum has started to weaken. On Monday, the Euro against the US Dollar briefly fell to 1 Euro to 1.1042 US Dollars, the lowest level since August 19. The exchange rate had surged to a one-year high of 1 Euro to 1.1202 US Dollars last week.

The upcoming release of US non-farm payroll data for August is expected to show improvement compared to July, which could increase downward pressure on the Euro. Improved employment data would ease expectations of a significant rate cut by the Federal Reserve in the coming months, helping the pressured US Dollar to rise and dampening the Euro's upward trend.

Data from the US Commodity Futures Trading Commission (CFTC) shows that investors heavily bought Euros last month, with hedge funds' bets on a stronger Euro reaching the highest level in over a year last week. While many in the market are shorting the US Dollar against the Euro, as speculation grows that the European Central Bank's rate cut this year may be smaller than the Federal Reserve's, these bets may face setbacks.

Elias Haddad, Senior Market Strategist at Brown Brothers Harriman, stated that robust August employment data could reduce the likelihood of a 100 basis point rate cut by the Federal Reserve before the end of the year. Meanwhile, following the first rate cut in June, the European Central Bank is preparing for a second cut in September. Investors expect at least one more rate cut by the end of the year. Elias Haddad said, "If this week's US employment data indicates a soft landing outlook, it will benefit the US Dollar and lead to a reduction in net long speculative positions on the Euro."