EUR/USD is trading around 1.1640 for the fourth day in a row. This stability is thanks to comments from ECB’s José Luis Escrivá about stable borrowing costs and targeted inflation. Traders are now waiting for the German IFO Business Survey data due soon. However, there are concerns for the Euro because of political tensions in France. Olivier Faure has threatened to dissolve the government unless budget demands are met, insisting on higher taxes for billionaires.

US-China Trade Resolution

The US Dollar may gain strength as reports suggest that the US and China have settled key trade issues. This sets the stage for a meeting between Trump and Xi to finalize a trade deal. US Treasury Secretary Scott Bessent has stated that President Trump’s threat of 100% tariffs on Chinese goods is no longer valid. The Euro is used by 19 countries in the EU and ranks second in global trade after the US Dollar. It represents 31% of foreign exchange transactions, with daily trading above $2.2 trillion. The European Central Bank (ECB) in Frankfurt oversees Eurozone monetary policy, affecting the Euro through interest rate changes. Higher inflation, exceeding the ECB’s 2% target, may lead to interest rate hikes, which would likely strengthen the Euro. Economic indicators, such as GDP and PMIs, also influence its value, especially information from Germany, France, Italy, and Spain. Currently, the EUR/USD pair is maintaining its recent gains around 1.1640, but faces challenges moving upward. One major risk for the Euro is the political uncertainty in France, where a no-confidence motion could be initiated today. In contrast, the US Dollar is gaining from positive news in US-China trade talks.

German IFO Business Climate Index

Today, the German IFO Business Climate index for October was released at 90.2, falling short of expectations and raising concerns about the Eurozone’s largest economy. This uncertainty is also reflected in the options market, where the Deutsche Bank Euro Volatility Index (EUVIX) has risen to 9.5, a level not seen since the Italian debt issues of 2024. This indicates we should prepare for increased price fluctuations in the coming weeks. While comments from an ECB official over the weekend were supportive, they do not suggest a shift toward a more aggressive policy. Eurostat’s recent estimate for October shows that inflation is steady at 2.1%, keeping the central bank in a neutral position for now. Without the chance of higher interest rates, a significant and sustained rise in the Euro seems unlikely. The more pressing issue remains the potential finalization of a US-China trade deal this Thursday, which looks more secure than it did during the breakdowns of 2023. A finalized agreement would likely decrease global risks and boost the US Dollar, putting downward pressure on the EUR/USD pair. Considering the different factors at play, using options to guard against a potential drop in the Euro or to prepare for increased volatility would be a wise approach. Create your live VT Markets account and start trading now.

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