Eurozone Economic Factors

The EUR/USD pair is steady around 1.1740, affected by the US government shutdown, which is delaying important economic reports like Nonfarm Payrolls. The pair is currently at 1.1738, up by 0.28%, during quiet trading. This shutdown is impacting market movements, with Federal Reserve officials split in their views. Lorie Logan wants to be aggressive because of ongoing inflation worries, while Stephen Miran prefers a cautious approach, needing access to data first. Recent economic reports include the Purchasing Managers Index (PMI) for September. The ISM shows a neutral outlook while S&P Global indicates slight economic growth. The ISM Services PMI fell short of expectations, whereas S&P Global’s PMI dropped a bit but was still stronger than predicted. Money markets now strongly expect a 25-basis-point rate cut by the Fed, with a 96% probability. Analysts are keeping a close eye on the Eurozone economy, as inflation could influence the European Central Bank’s (ECB) monetary policy. The EUR/USD has stayed above 1.1700 for five straight days. If it can break through crucial resistance levels, it may see further gains. If it drops below 1.1700, it could lead to more declines targeting support levels. As the second most traded currency, the Euro is quite important, accounting for a large portion of global foreign exchange transactions. Economic signals and ECB policies significantly impact its value.

Impact Of Monetary Policies

With the US government shutdown holding up key economic data as of October 4, 2025, uncertainty looms large. The market predicts a 96% chance of a Federal Reserve rate cut on October 29, but Fed officials have differing opinions. This creates a tense environment, suggesting that traders might want to focus more on volatility rather than direction. We have mixed signals; the ISM Services PMI is weak at 50, but the S&P Global survey shows some strength. The last Core PCE reading from August 2025 was at 3.8%, above the Fed’s target. This gives hawkish officials a solid argument against a rate cut, suggesting that the market’s high certainty about a cut might be wrong, opening the door for a significant market adjustment. For those betting on the Fed making a cut, buying EUR/USD call options with a strike price above the 1.1780 resistance level could be a smart move. This strategy anticipates a weaker dollar if the dovish camp prevails or if delayed economic reports indicate a slowing economy. Picking an expiration date after the October 29 Fed meeting would be ideal to take advantage of this event. On the other hand, along with the ongoing inflation and hawkish comments from officials like Lorie Logan, there’s a chance the Fed may surprise everyone by holding rates steady. To prepare for this, consider purchasing EUR/USD put options with a strike price below the 1.1700 support level. If the Fed fails to meet market expectations and doesn’t cut rates, we could see a quick decline towards the 100-day moving average around 1.1605. In Europe, the latest Eurozone HICP inflation for September 2025 is at 2.7%, keeping the European Central Bank in a wait-and-see mode. Consequently, the EUR/USD pair will rely heavily on developments regarding the US dollar in the coming weeks. Thus, our focus should be on the resolution of the US shutdown and the subsequent Fed decision. As this data blackout may continue, similar to the 35-day shutdown from 2018-2019, expect increased volatility. The EUR/USD currency volatility index (CVIX) has already risen to 8.5, the highest in three months. We could benefit from buying straddles or strangles with mid-November expirations, as this strategy positions us to profit from a significant price movement in either direction once the shutdown ends and the postponed data is released. Create your live VT Markets account and start trading now.

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