**The Euro’s Downward Trend** In the coming weeks, the Euro may continue to decline, possibly reaching 1.1490. Stability for the Euro might only happen if it breaks through the ‘strong resistance’ level of 1.1655, which was previously set at 1.1695. Meanwhile, the Michigan Consumer Sentiment Index is expected to drop from 55.1 in September to 54.2 in October. This shows that US consumers remain pessimistic due to a tough job market. However, the negative effects on the US dollar might be softened by a rise in demand for safe-haven assets. US tariffs remain an important policy tool for the government, used for public finance and foreign policy. The Euro’s weakness is evident, especially after the recent sharp decline, making a drop below 1.1540 more likely. Although conditions are oversold, the downward momentum is strong after four days of losses. This suggests that any small bounce back is likely to be short-lived. **Central Bank Policy Differences** This perspective is backed by the noticeable difference in policies between the central banks. Recent figures show that Eurozone inflation has cooled to 2.5%, while the US Consumer Price Index stubbornly stays around 3.1%. This inflation gap keeps the Federal Reserve vigilant and is a strong reason for a stronger dollar. For derivative traders, buying put options on the EUR/USD is a simple way to bet on a continued decline. Target strike prices around 1.1500, with expirations in late October or early November, to make the most of this expected drop. The main target for this decline remains the 1.1490 support zone. A safer strategy would be to use a bear put spread, such as buying a 1.1550 put and selling a 1.1450 put. This approach reduces initial costs while still offering good profit potential if the Euro weakens as expected. It’s a smart way to trade this outlook without risking too much. This market situation is similar to what we saw in mid-2022 when aggressive tightening by the Federal Reserve caused the EUR/USD to drop below parity. While we don’t anticipate a fall of that size now, history shows how quickly the pair can decline with differing monetary policies. The ongoing use of US tariffs as a policy tool reinforces the dollar’s status as a safe haven. It’s essential to clearly define risk when taking a bearish position. If the Euro moves above the 1.1655 resistance level, this negative outlook would be invalidated. A break of that level would indicate that downward pressure has stabilized and we would need to adjust our short-term strategies. Create your live VT Markets account and start trading now.

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