The EUR/USD is getting support as US interest rates drop, and French Prime Minister Sébastien Lecornu is likely to survive no-confidence votes in parliament. This comes after an agreement to postpone pension reforms to satisfy the Socialists. In the short term, the euro and French bonds see these developments positively. However, postponing pension reforms makes long-term fiscal management more challenging. Bond market players prefer this delay over the chance of early elections, bringing OAT:Bund spreads back within 80 basis points.

Currency Pair Movement

FX traders may react positively, signaling an upward trend for the euro. Nevertheless, it seems unlikely that the EUR/USD will break above the 1.1685/1730 range soon. Extended consolidation could lead to gains as the currency pair moves into its traditional bullish period in November and December, with an expected year-end target of 1.20. The FXStreet Insights Team collects market insights from top experts, focusing on various currency pairs and commodities. Their analyses include trades like USD/CNH, USD/JPY, XAU/USD (Gold), NZD/USD, and AUD/USD, highlighting potential market movements. The team emphasizes the importance of analysis and research for making informed trading choices. With expectations for US interest rates easing, the EUR/USD is finding some stability. Recent data shows US headline CPI cooling to 2.8%, which has lowered the 10-year Treasury yield to below 4.0%. This eases some pressure on the dollar, creating a supportive environment for the euro as we enter the final quarter of the year. The immediate political risk in France is decreasing, which is calming the sovereign debt markets. The gap between French and German 10-year bonds has tightened back to 78 basis points, indicating that investors are currently less concerned about instability. FX traders interpret this as a positive sign, viewing the steady French bond market favorably for the euro in the near term.

Derivatives Trading Strategy

For derivatives traders, the present conditions suggest a two-part strategy. With the spot price stabilizing below the key resistance level of 1.1730, selling November-expiry call options with a strike price around 1.1800 could be a good way to earn some premium. This strategy assumes that a significant breakout is unlikely in the coming weeks. Looking towards the end of the year, we remain optimistic with a target of 1.20. Historically, the US dollar tends to weaken in December, as seen in late 2023, which supports this outlook. Traders might consider buying December-expiry EUR/USD call spreads, like buying the 1.17 call and selling the 1.20 call, to position themselves for this potential move at a defined cost. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now