EUR/USD has risen for the third day in a row, currently sitting at 1.1645. The US Dollar is weakening due to rising trade tensions between the US and China. Attention is on upcoming speeches from officials at the Federal Reserve and European Central Bank, including President Christine Lagarde. In France, Prime Minister Lecornu survived a no-confidence vote, securing only 144 out of the 289 votes needed to remove him. He dropped Macron’s contentious pension reform, which keeps him in power, but he still needs to pass a budget in a divided parliament.

US-China Tensions

Tensions between the US and China continue. President Trump announced a trade war during a TV interview, and Treasury Secretary Scott Bessent’s comments about the Chinese negotiator did not reassure the markets. There is hope for a resolution during the upcoming summit between Trump and Xi Jinping. Meanwhile, the Euro remains stable, particularly against the Australian Dollar. The US Dollar is under pressure from trade uncertainty. The meeting between Trump and Xi Jinping next week may impact market stability, even though the Dollar appears weak. ECB officials Pierre Wunsch and Martin Kocher have suggested that the cycle of rate cuts may soon end. The Federal Reserve sees US economic activity as strong. Eurostat data showed a 1.2% decline in Eurozone Industrial Production for August, which is better than expected. The bullish trend for EUR/USD is clear, as it has broken through the 1.1635 resistance level. Christine Lagarde is expected to discuss the European economy, which could influence the Euro’s direction. Stephen Miran and Michelle W. Bowman serve on the Federal Reserve’s Board of Governors, shaping economic policies.

Central Bank Policy Shifts

The US Dollar remains pressured by ongoing trade tensions with China, creating a favorable environment for EUR/USD. The upcoming summit between the two leaders is crucial, with the Dollar likely to stay weak until a clear outcome is reached. This uncertainty points to potential volatility in the near future. We are noticing a subtle shift in central bank policy that benefits the Euro. Recent remarks from ECB officials indicate that the rate-cutting cycle is nearing its end, supported by core inflation remaining above the 2% target. Inflation was recently reported at 2.5% for September 2025. This contrasts with a Federal Reserve that appears more cautious, particularly due to weak employment demand noted in their recent analysis. Given the high event risk surrounding the trade summit, buying short-term volatility seems wise. Strategies like straddles or strangles could capitalize on big price moves in either direction after the meeting. For those optimistic about the Euro, purchasing call options with a strike price above the essential 1.1670 resistance level offers a defined-risk way to profit from a potential breakout towards the 1.1730 target. If there is de-escalation from the US-China summit, the US Dollar could experience a sharp relief rally, causing EUR/USD to fall. Traders should think about hedging long positions by buying put options with a strike below the 1.1600 support level. Historical trends show that similar risk-off reversals led to significant declines during past trade disputes, where optimistic news could wipe out gains in a single day. Create your live VT Markets account and start trading now.

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