The Euro is going through a tough time and is close to its lowest point in two months against the US Dollar. This week, it may record its worst loss of the year, down over 1.4%. Political events in France, including the surprise resignation of Prime Minister Sébastien Lecornu, have added to this decline as markets await President Emmanuel Macron’s choice for a new prime minister. In contrast, the US Dollar is holding strong as investors remain cautious due to political instability in both France and Japan. The USD Index (DXY) has risen by nearly 1.7% this week. The uncertainty in France and concerns over potential changes in Japan’s policies have increased the demand for the Dollar. Recent statements from the Federal Reserve have had little impact on the Dollar’s strength, with political factors taking precedence. Meanwhile, the European Central Bank acknowledges global uncertainties but does not foresee any immediate changes to its policies.

Anticipation For US Consumer Sentiment

There is high anticipation for the Michigan Consumer Sentiment Index, which is expected to drop to 54.2 in October from 55.1 in September. This sentiment is important as it reflects consumer spending willingness, impacting economic growth predictions. This month’s release is essential since it offers one of the few data points available due to the US government shutdown. With the Euro weakening and the US Dollar gaining strength, we expect the EUR/USD pair to continue its downward trend. The pair has fallen below the important 1.1600 support level, prompting traders to consider put options to take advantage of further declines. This strategy allows for profit from falling prices while limiting the maximum loss to the cost of the option. The political situation in France is the main reason for the Euro’s weakness, and we don’t expect a quick resolution. Macron’s selection of a new prime minister likely won’t ease the parliamentary deadlock, reminding many of the European sovereign debt crisis from the early 2010s. The implied volatility on the Euro has surged over 15% in the past week, indicating that the market is bracing for larger price swings and fears of instability.

Focus On Michigan Consumer Sentiment Data

Attention is now on the University of Michigan Consumer Sentiment data, one of the few reliable economic indicators available during the US government shutdown. Last week, the Conference Board’s consumer confidence report for September took a sharp downturn to 98.5, the lowest since the brief recession scare of 2024. If today’s Michigan figure is below the expected 54.2, it may signal deeper economic issues; however, a better-than-expected result could push the Dollar even higher. Given this information, purchasing EUR/USD put options with a one-month expiration seems like a smart choice. Targeting strike prices around 1.1500 and 1.1450 provides a favorable risk-to-reward ratio, aligning with technical support zones. This approach allows us to benefit from the ongoing bearish momentum driven by European political risks and the Dollar’s safe-haven appeal. Create your live VT Markets account and start trading now.

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