The Euro (EUR) has risen slightly by 0.2% against the US Dollar (USD), but it is still lagging behind most G10 currencies. This is happening amidst a general weakness of the USD, according to Scotiabank’s Chief FX Strategists. French politics are currently capturing market attention, especially with a confidence vote approaching. While industrial production in the Euro area has exceeded expectations, it did continue to decline in August. Meanwhile, France’s final Consumer Price Index (CPI) remained steady at 1.2% year-on-year. The Euro’s direction is now more influenced by political sentiment in France. Changes in EUR/spread correlations and stronger ties to 3-month risk reversals have been observed.

Sentiment And Political Concerns

Sentiment has slightly improved, with a small premium for EUR calls over puts. There has been some relief following French Prime Minister Lecornu’s successful negotiations with the Socialist Party ahead of the planned confidence vote from Marine Le Pen. The yield spread between France and Germany for 10 years has narrowed significantly, and may continue to be monitored due to Socialist Party backing for delaying the 2023 pension reform. The RSI, currently moderately bearish, is approaching neutral at 50, indicating a slow recovery for the Euro from the mid-1.15 range. Although it has surpassed a July trendline, the Euro now faces some congestion. It remains within a near-term range of 1.1580 to 1.1680, with no clear movement beyond the 50-day mark at 1.1691. The Euro is seeing a modest rise. However, it’s essential to recognize that sentiment, particularly from French politics, has become a more critical factor than economic data alone. The past year’s focus on the French confidence vote and pension reforms highlights this point. Currently, the EUR/USD is trading around 1.1250, which is quite different from the 1.16 levels previously discussed. With new debates over the French budget making headlines, the France-Germany 10-year yield spread has widened again, reaching 65 basis points this week after tightening significantly during the summer of 2025. This suggests that buying short-dated straddles or strangles on EUR/USD could be a smart way to trade the anticipated increase in volatility. Similar spread-widening occurred in late 2023 before budget negotiations, resulting in a 15% spike in one-month implied volatility.

Options Market Dynamics

In the options market, the dynamics have changed from what we previously observed. Currently, 3-month risk reversals display a clear preference for EUR puts, trading at a -0.5 delta. This indicates that traders are paying more for downside protection. Those who think this pessimism is excessive could consider selling out-of-the-money put options to earn premium. Though the earlier range between 1.1580 and 1.1680 is now a memory, the idea of range-bound trading still applies. We observe strong technical congestion between 1.1150 and 1.1300, with the 50-day moving average acting as resistance at 1.1280. An iron condor options strategy—selling a call spread above 1.1300 and a put spread below 1.1150—may be a good way to profit if the currency pair remains within this channel. Create your live VT Markets account and start trading now.

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