The Euro fell below 1.1700 against the US Dollar, reaching nearly one-month lows at 1.1645. Concerns about political and financial issues in France are making investors cautious about the Euro. Today, speeches from officials at the ECB and Fed, including Christine Lagarde, are in focus. This marks the second day of decline for the Euro, now trading around 1.1665. France’s political turmoil has attracted attention ahead of upcoming announcements from the Fed and ECB. President Dominique Macron’s credibility took a hit after a government shakeup, leading to increased calls for early elections.

Central Bank Perspectives

ECB officials are worried about geopolitical issues and weak growth. Christine Lagarde noted that disinflation has ended, and they may consider rate cuts. Investors expect more updates from Lagarde and Joachim Nagel on monetary policy. US Fed policymakers, like Michelle Bowman and Stephen Miran, could affect the direction of the US Dollar. There are worries about France’s political instability and its budget deficit, which is over the EU limit. Rating agencies have warned about possible downgrades of France’s debt. German Factory Orders data did not boost the markets, showing a 0.8% drop in August. As ECB and Fed officials prepare to speak, their comments may influence future monetary policies. The EUR/USD pair continues to feel pressure near the monthly low of 1.1645, with technical indicators showing limited potential for upward movement. The current market shows the Euro weakening against the US Dollar mainly due to France’s ongoing political and fiscal crisis. This instability is driving the Euro towards its monthly low of 1.1645. Investors are anxious about the leadership vacuum and uncertainty in the Eurozone’s second-largest economy. The risk is becoming clearer in the bond market, where the gap between French and German 10-year government bonds has increased to over 65 basis points this week. This jump indicates that investors are asking for a higher return to hold French debt. With France’s budget deficit expected to surpass 5.5% of GDP by 2025, fears of a debt downgrade are intensifying.

Strategy and Market Impact

This scenario puts the European Central Bank in a tough position, as officials propose another rate cut to support weak growth. Meanwhile, the US Federal Reserve is likely to maintain its current approach, leading to a stronger US Dollar. This difference in policies may widen if US inflation remains stubborn, similar to the July and August 2025 reports. Germany’s poor economic data, especially the unexpected decline in factory orders in August 2025, strengthens the view that the Eurozone economy is struggling. This aligns with other recent indicators, like the ZEW Economic Sentiment survey, which fell back into negative territory last month, indicating growing investor pessimism. We anticipate this economic weakness will continue to weigh on the Euro. For our strategy in the upcoming weeks, we should consider purchasing put options on the EUR/USD. This allows us to benefit from a decrease in the exchange rate while limiting our potential losses to the premium paid. A confirmed drop below the key 1.1645 support level would signal us to enter these positions, targeting lower levels around 1.1610 and 1.1575. We should look for options expiring in late October and November 2025 to allow enough time for the trade to develop amidst expected volatility from central bank speeches and political news. To manage risk, we can use the descending trendline around 1.1730 as a point to reassess our bearish stance. A move above that level would indicate that downward pressure might be easing. This Euro weakness is likely a broader trend, not just against the Dollar. We should also explore opportunities to short the Euro against other currencies with a more stable outlook, such as the Swiss Franc. Historically, the Franc strengthens during times of uncertainty in Europe, suggesting that shorting EUR/CHF could also be a profitable move. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now