EUR/USD: Range, Risk, and the Cost of Conviction
The pair has carved out a tight range. Why we are skeptical of breakout trades, and how we are positioning hedged exposure for clients with EUR liabilities.
EUR/USD has spent the better part of four months between 1.0850 and 1.1080. The range is tight, the implied volatility is suppressed, and the temptation to position for a breakout in either direction is high. We are resisting it.
The macro inputs are genuinely balanced. The ECB is closer to its first cut than the Fed, which argues for a softer EUR; eurozone growth has surprised positively for two consecutive quarters, which argues the other way. Positioning data shows speculative accounts roughly neutral. None of this is a setup for a high-conviction directional trade.
For clients with persistent EUR liabilities — typically importers and businesses with European operating costs — we are running a programmatic hedge ratio of 65–75% on the next 12 months of exposure, with the back end (months 9–12) executed via collars rather than outright forwards to preserve some optionality if the range eventually breaks higher.
For clients with EUR receivables, the calculus is the reverse: we are slightly under-hedged at 50–60% on the front, with conditional hedging triggers set at 1.0820 to add aggressively if the range breaks lower.
What we are not doing is taking outright directional positions in a range that has no clear catalyst to resolve. The cost of conviction in this tape is asymmetric to the downside.
- EUR/USD is range-bound with no clear catalyst — no high-conviction directional trade.
- EUR-liability clients: programmatic 65–75% hedge with collars on the back end.
- EUR-receivable clients: lighter hedge with conditional triggers at the lower range bound.