## The Impact of the US Government Shutdown The EUR/USD currency pair may not drop much more because of the pressure on the US Dollar from the ongoing US government shutdown. This shutdown has lasted 19 days, making it the third-longest in US history, with no end in sight after multiple failed votes in the Senate. On top of that, easing trade tensions between the US and China could also affect the US Dollar. President Trump wants China to resume buying soybeans, which may lead to tariff negotiations. A meeting is scheduled between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, which could pave the way for talks between Trump and Chinese President Xi. ## The Eurozone’s Economic Challenges Looking back, the downgrade of France’s credit rating by S&P was a crucial moment for the Euro. At that time, EUR/USD struggled around 1.1660, and concerns about France’s budget still linger. Recent forecasts from the French Ministry of Finance show that the budget deficit for 2025 is expected to be 4.9% of GDP, well above the EU’s 3% limit, putting more pressure on the Euro. These worries are now heightened by new signs of economic weakness in the Eurozone. Germany’s IFO Business Climate index fell unexpectedly to 89.5 last week, marking the third straight month of decline and indicating continued struggles in manufacturing. Because of this, it is unlikely the European Central Bank will raise interest rates, limiting any potential boost for the Euro. Fast forward to late 2025; the earlier US federal government shutdown—now lasting 35 days—had only a short-term effect on the dollar. The US economy has since shown strong resilience, with September’s jobs report indicating an addition of 195,000 non-farm payrolls. Meanwhile, core inflation remains steady at 3.5%, suggesting the Federal Reserve may keep interest rates higher for longer than the ECB. Old trade tensions over agricultural goods have shifted focus. Now, we are more concerned with disputes over technology and semiconductor exports, which adds a different kind of uncertainty to the market. In this climate, the US Dollar tends to perform better as a safe-haven currency compared to the Euro. Given the stark contrast between a shaky Eurozone and a strong US economy, we expect continued downward pressure on the EUR/USD. Derivative traders might consider buying put options with strike prices around 1.1300, set to expire in the next 45 to 60 days. This strategy allows for potential gains from a decline while clearly defining maximum risk. ## Market Volatility and Strategies Recently, implied volatility for the pair increased to 7.8%, up from 6.5% last month. This suggests the market is preparing for a bigger movement. While option strategies may now be more expensive, they are also crucial for protecting against further declines. We believe that establishing bearish positions now is wise before the market fully reflects the weaknesses we expect for the Euro. Create your live VT Markets account and start trading now.

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