The Euro dropped against the US Dollar, falling from around 1.1670 last week to below 1.1500. This is a decline of about 1.3% over four days. The US Dollar gained strength because the Federal Reserve is confirmed on keeping interest rates high, which has made investors cautious. In the Eurozone, October saw a slight improvement in manufacturing activity, with the index rising to 50.0 from 49.8 in September. In Germany and other major economies, manufacturing figures also showed small gains, but they didn’t help the Euro much.

US Dollar Stability

The US Dollar remains steady as expectations for an interest rate cut in December have declined. The chances of a cut are down to 67% from over 90%. Focus now shifts to US Manufacturing PMI data, expected to rise to 49.2 from 49.1 in September. This could boost the Dollar further. Technical indicators show negative sentiment for EUR/USD, with support levels breaking below 1.1530. The ISM Manufacturing PMI is important for understanding manufacturing health. A reading above 50 means growth, which is good for the US Dollar, while below 50 indicates decline. The EUR/USD pair is weak, having dropped for four consecutive days to reach the 1.1500 level. This decline is driven by a strong US Dollar, as the Federal Reserve’s hawkish stance signals lower resistance for this pair. This trend is supported by a significant interest rate gap between the US and Eurozone. The Fed funds rate remains steady at 5.25-5.50%, while Eurozone inflation fell to a two-year low of 2.9% in October. This gives the European Central Bank little reason to match the Fed’s policies, driving the Dollar’s strength against the Euro.

Strategy Focus

In the upcoming weeks, we should focus on bearish positions. Any rise towards previous support levels of 1.1530 or 1.1550 should be seen as a chance to open new short positions. The momentum is clearly downward, and little in the European economic calendar is likely to change this outlook. Traders should think about buying EUR/USD put options with strike prices below 1.1500, targeting the 1.1440 level. Another approach is to sell out-of-the-money call spreads with strikes above the 1.1580 area. These strategies allow us to profit from a continued decline or a period of stability at these lower levels. Today’s ISM Manufacturing PMI release at 15:00 is a major event risk, especially with the ongoing government shutdown making private data even more important. Previously, we experienced a lengthy period of manufacturing decline in 2023 and 2024, so the market will respond strongly to significant deviations from the 49.5 estimate. A surprisingly strong number could strengthen the Dollar and further push down EUR/USD. Create your live VT Markets account and start trading now.

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